UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended ~~September~~June 30, ~~2019,~~2020, or

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

Commission File Number 000-55774

BROADSTONE NET LEASE, INC.

(Exact name of registrant as specified in its charter)

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

800 Clinton Square

Rochester, New York

14604

(Address of principal executive offices)

(Zip Code)

(585) 287-6500

(Registrant’s telephone number, including area code)

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

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

None

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

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

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

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

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

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

There were ~~25,550,886.642~~26,858,342.567 shares of the Registrant’s common stock, $0.001 par value per share, outstanding as of ~~November 12, 2019.~~August 1, 2020.

BROADSTONE NET LEASE, INC.

TABLE OF CONTENTS

		Page
Part I - FINANCIAL INFORMATION		1
Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets (Unaudited)	1
	Condensed Consolidated Statements of Income and Comprehensive Income (Loss) (Unaudited)	2
	Condensed Consolidated Statements of Stockholders’ Equity and Mezzanine Equity (Unaudited)	3
	Condensed Consolidated Statements of Cash Flows (Unaudited)	5
	Notes to the Condensed Consolidated Financial Statements (Unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3031
	Cautionary Note Regarding Forward-Looking Statements	3031
	Explanatory Note and Certain Defined Terms	32
	Overview	3132
	Recent Developments – COVID-19 Pandemic	33
	Recent Developments – Internalization	38
	Results of Operations	38
	Liquidity and Capital Resources	43
	Cash Flows	47
	Impact of Inflation	47
	Off-Balance Sheet Arrangements	4748
	Contractual Obligations	47
	~~Results of Operations~~	48
	~~Net Income and Non-GAAP Measures (FFO and AFFO)~~	50
	Critical Accounting Policies	5248
	Impact of Recent Accounting Pronouncements	5249
	Determined Share Value	49
	Distributions and Distribution Reinvestment	51
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5352
Item 4.	Controls and Procedures	5452
Part II - OTHER INFORMATION		5553
Item 1.	Legal Proceedings	5553
Item 1A.	Risk Factors	5553
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5753
Item 3.	Defaults upon Senior Securities	5954
Item 4.	Mine Safety Disclosures	5954
Item 5.	Other Information	5954
Item 6.	Exhibits	6055

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

Broadstone Net Lease, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except per share amounts)

	September 30, 2019			December 31, 2018			June 30, 2020			December 31, 2019
Assets
Accounted for using the operating method, net of accumulated depreciation	$	3,459,626		$	2,641,746		$	3,346,792		$	3,415,400
Accounted for using the direct financing method		41,920			42,000			30,953			41,890
Investment in rental property, net		3,501,546			2,683,746			3,377,745			3,457,290
Cash and cash equivalents		14,008			18,612			9,241			12,455
Accrued rental income		81,251			69,247			90,545			84,534
Tenant and other receivables, net		861			1,026			5,045			934
Prepaid expenses and other assets		34,594			4,316			9,819			12,613
Interest rate swap, assets		1,120			17,633			—			2,911
Goodwill								339,769			—
Intangible lease assets, net		342,478			286,258			298,741			331,894
Debt issuance costs – unsecured revolver, net		2,679			2,261
Debt issuance costs – unsecured revolving credit facility, net								1,782			2,380
Leasing fees, net		13,251			13,698			11,368			12,847
Total assets	$	3,991,788		$	3,096,797		$	4,144,055		$	3,917,858

Liabilities and equity
Unsecured revolver	$	303,300		$	141,100
Liabilities, mezzanine equity and equity
Unsecured revolving credit facility							$	248,300		$	197,300
Mortgages and notes payable, net		112,562			78,952			109,512			111,793
Unsecured term notes, net		1,671,511			1,225,773			1,673,092			1,672,081
Interest rate swap, liabilities		37,489			1,820			85,678			24,471
Earnout liability								37,975			—
Accounts payable and other liabilities		34,008			24,394			25,550			37,377
Due to related parties		433			114
Accrued interest payable		9,482			9,777			4,144			3,594
Intangible lease liabilities, net		94,503			85,947			83,157			92,222
Total liabilities		2,263,288			1,567,877			2,267,408			2,138,838

Commitments and contingencies (See Note 16)

Mezzanine equity
Common stock, 781 shares issued and outstanding at June 30, 2020								66,376			—
Non-controlling interests								112,159			—
Total mezzanine equity								178,535			—

Equity
Broadstone Net Lease, Inc. stockholders' equity:
Preferred stock, $0.001 par value; 20,000 shares authorized, no shares issued or outstanding		—			—			—			—
Common stock, $0.001 par value; 80,000 shares authorized, 25,482 and 22,014 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively		25			22
Common stock, $0.001 par value; 80,000 shares authorized, 26,077 and 26,001 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively								26			26
Additional paid-in capital		1,852,038			1,557,421			1,899,751			1,895,935
Cumulative distributions in excess of retained earnings		(194,790	)		(155,150	)		(229,531	)		(208,261	)
Accumulated other comprehensive (loss) income		(33,911	)		14,806
Accumulated other comprehensive loss								(78,613	)		(20,086	)
Total Broadstone Net Lease, Inc. stockholders’ equity		1,623,362			1,417,099			1,591,633			1,667,614
Non-controlling interests		105,138			111,821			106,479			111,406
Total equity		1,728,500			1,528,920			1,698,112			1,779,020
Total liabilities and equity	$	3,991,788		$	3,096,797
Total liabilities, mezzanine equity and equity							$	4,144,055		$	3,917,858

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

Broadstone Net Lease, Inc. and Subsidiaries

Condensed Consolidated Statements of Income and Comprehensive Income (Loss)

(Unaudited)

(in thousands, except per share amounts)

	For the three months ended September 30,						For the nine months ended September 30,						For the three months ended June 30,						For the six months ended June 30,
	2019			2018			2019			2018			2020			2019			2020			2019
Revenues
Lease revenues	$	76,401		$	61,764		$	213,884		$	174,385
Lease revenues, net													$	80,371		$	69,053		$	158,602		$	137,483

Operating expenses
Depreciation and amortization		28,392			21,869			77,989			61,303			39,921			25,287			71,140			49,597
Asset management fees		5,610			4,663			16,048			13,119			—			5,318			2,461			10,438
Property management fees		2,098			1,680			5,918			4,792			—			1,935			1,275			3,820
Property and operating expense		3,855			2,777			11,497			7,926			4,190			3,252			8,305			7,642
General and administrative		1,315			1,664			3,807			4,451			5,700			1,389			11,542			2,492
State, franchise and foreign tax		405			58			1,153			811
Provision for impairment of investment in rental properties		2,435			2,061			3,452			2,061			534			—			2,667			1,017
Total operating expenses		44,110			34,772			119,864			94,463			50,345			37,181			97,390			75,006

Other income (expenses)
Preferred distribution income		—			65			—			440
Interest income		5			16			6			178			11			—			20			1
Interest expense		(18,465	)		(14,484	)		(51,025	)		(38,115	)		(19,513	)		(16,732	)		(40,504	)		(32,560	)
Cost of debt extinguishment		(455	)		(50	)		(1,176	)		(101	)		—			(8	)		(22	)		(721	)
Gain on sale of real estate		12,585			2,025			16,772			9,620			1,046			2,787			8,665			4,187
Gain on sale of investment in related party		—			8,500			—			8,500
Income taxes														(402	)		(305	)		(951	)		(748	)
Internalization expenses		(923	)		—			(1,195	)		—			(389	)		(272	)		(1,594	)		(272	)
Change in fair value of earnout liability														6,321			—			2,144			—
Other losses														(2	)		—			(24	)		—
Net income		25,038			23,064			57,402			60,444			17,098			17,342			28,946			32,364
Net income attributable to non-controlling interests		(1,650	)		(1,797	)		(3,942	)		(4,631	)		(1,745	)		(1,208	)		(2,777	)		(2,292	)
Net income attributable to Broadstone Net Lease, Inc.	$	23,388		$	21,267		$	53,460		$	55,813		$	15,353		$	16,134		$	26,169		$	30,072

Weighted average number of common shares outstanding
Basic		24,642			20,554			23,394			19,850			26,856			23,204			26,691			22,770
Diluted		26,379			22,291			25,131			21,496			29,912			24,941			29,482			24,507
Net earnings per common share
Basic and diluted	$	0.95		$	1.03		$	2.28		$	2.81		$	0.57		$	0.70		$	0.98		$	1.32

Comprehensive income
Comprehensive income (loss)
Net income	$	25,038		$	23,064		$	57,402		$	60,444		$	17,098		$	17,342		$	28,946		$	32,364
Other comprehensive income
Other comprehensive loss
Change in fair value of interest rate swaps		(16,380	)		6,299			(52,182	)		30,296			(6,056	)		(23,178	)		(64,118	)		(35,802	)
Realized gain on interest rate swaps		(41	)		(4	)		(163	)		(4	)		(41	)		(41	)		(83	)		(122	)
Comprehensive income		8,617			29,359			5,057			90,736
Comprehensive income attributable to non-controlling interests		(557	)		(2,288	)		(315	)		(6,931	)
Comprehensive income attributable to Broadstone Net Lease, Inc.	$	8,060		$	27,071		$	4,742		$	83,805
Comprehensive income (loss)														11,001			(5,877	)		(35,255	)		(3,560	)
Comprehensive (income) loss attributable to non-controlling interests														(1,123	)		409			2,897			242
Comprehensive income (loss) attributable to Broadstone Net Lease, Inc.													$	9,878		$	(5,468	)	$	(32,358	)	$	(3,318	)

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

Broadstone Net Lease, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity and Mezzanine Equity

(Unaudited)

(in thousands, except per share amounts)

Common
Stock

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, 2019

$
22

$
1,557,421

$
—

$
(155,150
)

$
14,806

$
111,821

$
1,528,920

Net income

—

—

—

13,938

—

1,084

15,022

Issuance of 883 shares of common stock

1

75,099

(225
)

—

—

—

74,875

Other offering costs

—

(300
)

—

—

—

—

(300
)
Distributions declared ($0.43 per share January 2019,
   $0.44 per share February through March 2019)

—

—

—

(29,635
)

—

(2,348
)

(31,983
)
Change in fair value of interest rate swap agreements

—

—

—

—

(11,713
)

(911
)

(12,624
)
Realized gain on interest rate swap agreements

—

—

—

—

(75
)

(6
)

(81
)
Redemption of 21 shares of common stock

—

(1,803
)

—

—

—

—

(1,803
)
Balance, March 31, 2019

$
23

$
1,630,417

$
(225
)

$
(170,847
)

$
3,018

$
109,640

$
1,572,026

Net income

—

—

—

16,134

—

1,208

17,342

Issuance of 892 shares of common stock

1

76,004

225

—

—

—

76,230

Other offering costs

—

(300
)

—

—

—

—

(300
)
Distributions declared ($0.44 per share April through
   June 2019)

—

—

—

(30,934
)

—

(2,297
)

(33,231
)
Change in fair value of interest rate swap agreements

—

—

—

—

(21,564
)

(1,614
)

(23,178
)
Realized gain on interest rate swap agreements

—

—

—

—

(38
)

(3
)

(41
)
Redemption of 38 shares of common stock

—

(3,210
)

—

—

—

—

(3,210
)
Balance, June 30, 2019

$
24

$
1,702,911

$
—

$
(185,647
)

$
(18,584
)

$
106,934

$
1,605,638

Net income

—

—

—

23,388

—

1,650

25,038

Issuance of 1,840 shares of common stock

1

157,191

—

—

—

—

157,192

Other offering costs

—

(703
)

—

—

—

—

(703
)
Distributions declared ($0.44 per share July through
   September 2019)

—

—

—

(32,531
)

—

(2,352
)

(34,883
)
Change in fair value of interest rate swap agreements

—

—

—

—

(15,288
)

(1,092
)

(16,380
)
Realized gain on interest rate swap agreements

—

—

—

—

(39
)

(2
)

(41
)
Redemption of 88 shares of common stock

—

(7,361
)

—

—

—

—

(7,361
)
Balance, September 30, 2019

$
25

$
1,852,038

$
—

$
(194,790
)

$
(33,911
)

$
105,138

$
1,728,500

	Common Stock		Additional Paid-in Capital			Cumulative Distributions in Excess of Retained Earnings			Accumulated Other Comprehensive Loss			Non- controlling Interests			Total Stockholders' Equity			Mezzanine Equity Common Stock		Mezzanine Equity Non-controlling Interests			Total Mezzanine Equity
Balance, January 1, 2020	$	26	$	1,895,935		$	(208,261	)	$	(20,086	)	$	111,406		$	1,779,020		$	—	$	—		$	—
Cumulative effect of accounting change (see Note 2)		—		—			(323	)		—			—			(323	)		—		—			—
Net income		—		—			10,816			—			710			11,526			—		322			322
Issuance of 73 shares of common stock and 781 shares of mezzanine equity common stock		—		6,097			—			—			—			6,097			66,376		—			66,376
Issuance of 1,320 mezzanine non-controlling interests		—		—			—			—			—			—			—		112,159			112,159
Adjustment to carrying value of mezzanine equity non-controlling interests		—		(2,416	)		—			—			—			(2,416	)		—		2,416			2,416
Distributions declared ($0.44 per share January 2020 through March 2020)		—		—			(35,299	)		—			(2,100	)		(37,399	)		—		(1,161	)		(1,161	)
Change in fair value of interest rate swap agreements		—		—			—			(53,014	)		(3,472	)		(56,486	)		—		(1,576	)		(1,576	)
Realized gain on interest rate swap agreements		—		—			—			(38	)		(2	)		(40	)		—		(2	)		(2	)
Balance, March 31, 2020	$	26	$	1,899,616		$	(233,067	)	$	(73,138	)	$	106,542		$	1,699,979		$	66,376	$	112,158		$	178,534
Net income		—		—			15,353			—			992			16,345			—		753			753
Issuance of three shares of common stock		—		232			—			—			—			232			—		—			—
Adjustment to carrying value of mezzanine equity non-controlling interests		—		(97	)		—			—			—			(97	)		—		97			97
Distributions declared ($0.44 per share in April 2020)		—		—			(11,817	)		—			(701	)		(12,518	)		—		(581	)		(581	)
Change in fair value of interest rate swap agreements		—		—			—			(5,438	)		(351	)		(5,789	)		—		(267	)		(267	)
Realized gain on interest rate swap agreements		—		—			—			(37	)		(3	)		(40	)		—		(1	)		(1	)
Balance, June 30, 2020	$	26	$	1,899,751		$	(229,531	)	$	(78,613	)	$	106,479		$	1,698,112		$	66,376	$	112,159		$	178,535

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

Broadstone Net Lease, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity ~~– (continued)~~and Mezzanine Equity

(Unaudited)

(in thousands, except per share amounts)

Common
Stock

Additional
Paid-in
Capital

Subscriptions
Receivable

Cumulative
Distributions
in Excess of
Retained
Earnings

Accumulated
Other
Comprehensive
Income

Non-
controlling
Interests

Total

Balance, January 1, 2018

$
19

$
1,301,979

$
(15
)

$
(120,280
)

$
5,122

$
97,376

$
1,284,201

Net income

—

—

—

17,573

—

1,422

18,995

Issuance of 710 shares of common stock

1

57,154

(129
)

—

—

—

57,026

Other offering costs

—

(224
)

—

—

—

—

(224
)
Distributions declared ($0.415 per share January 2018,
   $0.43 per share February through March 2018)

—

—

—

(24,476
)

—

(2,472
)

(26,948
)
Change in fair value of interest rate swap agreements

—

—

—

—

15,685

1,270

16,955

Conversion of eight membership units to eight shares of
   common stock

—

684

—

—

—

(684
)

—

Redemption of 46 shares of common stock

—

(3,577
)

—

—

—

—

(3,577
)
Cancellation of nine shares of common stock

—

(748
)

—

—

—

—

(748
)
Balance, March 31, 2018

$
20

$
1,355,268

$
(144
)

$
(127,183
)

$
20,807

$
96,912

$
1,345,680

Net income

—

—

—

16,974

—

1,412

18,386

Issuance of 695 shares of common stock

—

56,886

(356
)

—

—

—

56,530

Other offering costs

—

(301
)

—

—

—

—

(301
)
Issuance of 194 membership units

—

—

—

—

—

15,797

15,797

Distributions declared ($0.43 per share April through
   June 2018)

—

—

—

(25,620
)

—

(2,383
)

(28,003
)
Change in fair value of interest rate swap agreements

—

—

—

—

6,503

539

7,042

Redemption of 28 shares of common stock

—

(2,312
)

—

—

—

—

(2,312
)
Balance, June 30, 2018

$
20

$
1,409,541

$
(500
)

$
(135,829
)

$
27,310

$
112,277

$
1,412,819

Net income

—

—

—

21,267

—

1,797

23,064

Issuance of 870 shares of common stock

1

72,770

(1,190
)

—

—

—

71,581

Other offering costs

—

(297
)

—

—

—

—

(297
)
Distributions declared ($0.43 per share July through
   September 2018)

—

—

—

(26,555
)

—

(1,861
)

(28,416
)
Change in fair value of interest rate swap agreements

—

—

—

—

5,807

492

6,299

Realized gain on interest rate swap agreements

—

—

—

—

(3
)

(1
)

(4
)
Redemption of 32 shares of common stock

—

(2,675
)

—

—

—

—

(2,675
)
Balance, September 30, 2018

$
21

$
1,479,339

$
(1,690
)

$
(141,117
)

$
33,114

$
112,704

$
1,482,371

	Common Stock		Additional Paid-in Capital			Subscriptions Receivable			Cumulative Distributions in Excess of Retained Earnings			Accumulated Other Comprehensive Income			Non- controlling Interests			Total Stockholders' Equity			Mezzanine Equity Common Stock		Mezzanine Equity Non-controlling Interests		Total Mezzanine Equity
Balance, January 1, 2019	$	22	$	1,557,421		$	—		$	(155,150	)	$	14,806		$	111,821		$	1,528,920		$	—	$	—	$	—
Net income		—		—			—			13,938			—			1,084			15,022			—		—		—
Issuance of 883 shares of common stock		1		75,099			(225	)		—			—			—			74,875			—		—		—
Other offering costs		—		(300	)		—			—			—			—			(300	)		—		—		—
Distributions declared ($0.43 per share January 2019, $0.44 per share February through March 2019)		—		—			—			(29,635	)		—			(2,348	)		(31,983	)		—		—		—
Change in fair value of interest rate swap agreements		—		—			—			—			(11,713	)		(911	)		(12,624	)		—		—		—
Realized gain on interest rate swap agreements		—		—			—			—			(75	)		(6	)		(81	)		—		—		—
Redemption of 21 shares of common stock		—		(1,803	)		—			—			—			—			(1,803	)		—		—		—
Balance, March 31, 2019	$	23	$	1,630,417		$	(225	)	$	(170,847	)	$	3,018		$	109,640		$	1,572,026		$	—	$	—	$	—
Net income		—		—			—			16,134			—			1,208			17,342			—		—		—
Issuance of 892 shares of common stock		1		76,004			225			—			—			—			76,230			—		—		—
Other offering costs		—		(300	)		—			—			—			—			(300	)		—		—
Distributions declared ($0.44 per share April through June 2019)	��	—		—			—			(30,934	)		—			(2,297	)		(33,231	)		—		—		—
Change in fair value of interest rate swap agreements		—		—			—			—			(21,564	)		(1,614	)		(23,178	)		—		—		—
Realized gain on interest rate swap agreements		—		—			—			—			(38	)		(3	)		(41	)		—		—		—
Redemption of 38 shares of common stock		—		(3,210	)		—			—			—			—			(3,210	)		—		—		—
Balance, June 30, 2019	$	24	$	1,702,911		$	—		$	(185,647	)	$	(18,584	)	$	106,934		$	1,605,638		$	—	$	—	$	—

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

Broadstone Net Lease, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

	For the six months ended June 30,
	2020			2019
Operating activities
Net income	$	28,946		$	32,364
Adjustments to reconcile net income including non-controlling interests to net cash provided by operating activities:
Depreciation and amortization including intangibles associated with investment in rental property		71,020			48,142
Provision for impairment of investment in rental properties		2,667			1,017
Amortization of debt issuance costs charged to interest expense		1,637			1,079
Straight-line rent and financing lease adjustments		(7,757	)		(10,383	)
Cost of debt extinguishment		22			721
Gain on sale of real estate		(8,665	)		(4,187	)
Change in fair value of earnout liability		(2,144	)		—
Leasing fees paid		—			(435	)
Adjustment to provision for credit losses		(127	)		—
Other non-cash items		228			185
Changes in assets and liabilities, net of acquisition:
Tenant and other receivables		(4,111	)		897
Prepaid expenses and other assets		(235	)		(16	)
Accounts payable and other liabilities		(2,573	)		2,534
Accrued interest payable		550			(7,199	)
Net cash provided by operating activities		79,458			64,719

Investing activities
Acquisition of rental property accounted for using the operating method, net of mortgages assumed of $0 and $49,782 in 2020 and 2019, respectively		—			(153,858	)
Cash paid for Internalization		(30,861	)		—
Capital expenditures and improvements		(3,824	)		(1,543	)
Proceeds from disposition of rental property, net		45,423			33,632
Change in deposits on investments in rental property		—			875
Net cash provided by (used in) investing activities		10,738			(120,894	)

Financing activities
Proceeds from issuance of common stock, net		131			120,190
Redemptions of common stock		—			(5,013	)
Cash paid for deferred offering costs		(1,055	)		—
Borrowings on mortgages, notes payable and unsecured term notes, net of mortgages assumed of $0 and $49,782 in 2020 and 2019, respectively		60,000			300,000
Principal payments on mortgages, notes payable and unsecured term notes		(152,533	)		(307,672	)
Borrowings on unsecured revolving credit facility		192,000			55,800
Repayments on unsecured revolving credit facility		(141,000	)		(73,300	)
Cash distributions paid to stockholders		(52,779	)		(29,572	)
Cash distributions paid to non-controlling interests		(5,307	)		(4,627	)
Debt issuance and extinguishment costs paid		(122	)		(5,902	)
Net cash (used in) provided by financing activities		(100,665	)		49,904
Net decrease in cash and cash equivalents and restricted cash		(10,469	)		(6,271	)
Cash and cash equivalents and restricted cash at beginning of period		20,311			18,989
Cash and cash equivalents and restricted cash at end of period	$	9,842		$	12,718

Reconciliation of cash and cash equivalents and restricted cash
Cash and cash equivalents at beginning of period	$	12,455		$	18,612
Restricted cash at beginning of period		7,856			377
Cash and cash equivalents and restricted cash at beginning of period	$	20,311		$	18,989

Cash and cash equivalents at end of period	$	9,241		$	10,288
Restricted cash at end of period		601			2,430
Cash and cash equivalents and restricted cash at end of period	$	9,842		$	12,718

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

Broadstone Net Lease, Inc. and Subsidiaries

~~Condensed Consolidated Statements of Cash Flows~~

~~(Unaudited)~~

~~(in thousands)~~

For the nine months ended
September 30,

2019

2018

Operating activities

Net income

$
57,402

$
60,444

Adjustments to reconcile net income including non-controlling interest to net cash provided by
   operating activities:

Depreciation and amortization including intangibles associated with investment in rental property

75,661

61,515

Provision for impairment on investment in rental properties

3,452

2,061

Amortization of debt issuance costs charged to interest expense

1,655

1,303

Straight-line rent and financing lease adjustments

(15,882
)

(15,640
)
Cost of debt extinguishment

1,176

101

Gain on sale of real estate

(16,772
)

(9,620
)
Settlement of interest rate swap

—

760

Gain on sale of investment in related party

—

(8,500
)
Leasing fees paid

(747
)

(1,325
)
Other non-cash items

277

468

Changes in assets and liabilities:

Tenant and other receivables

165

(65
)
Prepaid expenses and other assets

(393
)

(799
)
Accounts payable and other liabilities

5,234

(893
)
Accrued interest payable

(295
)

3,707

Net cash provided by operating activities

110,933

93,517

Investing activities

Acquisition of rental property accounted for using the operating method, net of mortgages assumed of
   $49,782 and $20,845 in 2019 and 2018, respectively

(957,820
)

(329,664
)
Acquisition of rental property accounted for using the direct financing method

—

(430
)
Capital expenditures and improvements

(4,044
)

(4,326
)
Proceeds from sale of investment in related party

—

18,500

Proceeds from disposition of rental property, net

90,137

41,330

Change in deposits on investments in rental property

1,500

—

Net cash used in investing activities

(870,227
)

(274,590
)

Financing activities

Proceeds from issuance of common stock, net

260,475

146,791

Redemptions of common stock

(12,374
)

(8,564
)
Borrowings on mortgages, notes payable and unsecured term notes, net of mortgages assumed of
   $49,782 and $20,845 in 2019 and 2018, respectively

750,000

415,000

Principal payments on mortgages, notes payable and unsecured term notes

(316,191
)

(33,930
)
Borrowings on unsecured revolver

389,100

189,500

Repayments on unsecured revolver

(226,900
)

(462,500
)
Cash distributions paid to stockholders

(45,219
)

(38,410
)
Cash distributions paid to non-controlling interests

(6,980
)

(6,630
)
Debt issuance and extinguishment costs paid

(7,491
)

(2,255
)
Net cash provided by financing activities

784,420

199,002

Net increase in cash and cash equivalents and restricted cash

25,126

17,929

Cash and cash equivalents and restricted cash at beginning of period

18,989

10,099

Cash and cash equivalents and restricted cash at end of period

$
44,115

$
28,028

Reconciliation of cash and cash equivalents and restricted cash

Cash and cash equivalents at beginning of period

$
18,612

$
9,355

Restricted cash at beginning of period

377

744

Cash and cash equivalents and restricted cash at beginning of period

$
18,989

$
10,099

Cash and cash equivalents at end of period

$
14,008

$
17,301

Restricted cash at end of period

30,107

10,727

Cash and cash equivalents and restricted cash at end of period

$
44,115

$
28,028

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

~~Broadstone Net Lease, Inc. and Subsidiaries~~

Notes to the Condensed Consolidated Financial Statements (Unaudited)

(in thousands)

1. Business Description

Broadstone Net Lease, Inc. (the “Corporation”) is a Maryland corporation formed on October 18, 2007, that elected to be taxed as a real estate investment trust (“REIT”) commencing with the taxable year ended December 31, 2008. The Corporation focuses on investing in income-producing, net leased commercial properties, primarily in the United States. The Corporation leases ~~properties to~~industrial, healthcare, restaurant, office, retail, ~~healthcare, industrial, office,~~ and other commercial ~~businesses~~properties under long-term lease agreements. At ~~September~~June 30, ~~2019,~~2020, the Corporation owned a diversified portfolio of ~~662~~632 individual ~~net leased~~ commercial properties located in 4241 states throughout the continental United States and one property in British Columbia, Canada.

Broadstone Net Lease, LLC (the ~~“Operating Company”~~Corporation’s operating company, or the “OP”), is the entity through which the Corporation conducts its business and owns (either directly or through subsidiaries) all of the Corporation’s properties. The Corporation is the sole managing member of the ~~Operating Company.~~OP. The remaining ~~interests~~membership units in the ~~Operating Company,~~OP (“OP Units”), which are referred to as non-controlling interests, are held by members who acquired their interest by contributing ~~property~~real estate properties or other assets to the ~~Operating Company~~OP in exchange for ~~membership units of the Operating Company.~~OP Units. As the Corporation conducts substantially all of its operations through the ~~Operating Company,~~OP, it is structured as what is referred to as an umbrella partnership real estate investment trust (“UPREIT”). The Corporation, the OP, and its consolidated subsidiaries are collectively referred to as the “Company”. The following table summarizes the outstanding equity and economic ownership interest inof the ~~Operating Company:~~Corporation and the OP:

Percentage of shares owned by

September 30,
2019

December 31,
2018

Corporation

93.6
%

92.7
%
Non-controlling interests

6.4
%

7.3
%

100.0
%

100.0
%

	June 30, 2020									December 31, 2019
(in thousands)	Shares of Common Stock			OP Units			Total Diluted Shares			Shares of Common Stock			OP Units			Total Diluted Shares
Permanent equity		26,077			1,737			27,814			26,001			1,737			27,738
Mezzanine equity		781			1,320			2,101			—			—			—
Total		26,858			3,057			29,915			26,001			1,737			27,738
Percent Ownership of OP		89.8	%		10.2	%		100.0	%		93.7	%		6.3	%		100.0	%

Refer to Note 14 for further discussion regarding the weighted average shares outstanding.

The Corporation operates under the direction of its board of directors (the “Board of Directors”), which is responsible for the management and control of the Company’s ~~(as defined below)~~ affairs. ~~The~~Prior to February 7, 2020, the Corporation ~~is currently~~was externally managed ~~and its Board of Directors has retained the Corporation’s sponsor,~~by Broadstone Real Estate, LLC ~~(the “Manager”~~(“BRE”) and Broadstone Asset Management, LLC (the “Asset Manager”) ~~to manage the Corporation’s day-to-day affairs, to implement the Corporation’s investment strategy, and to provide certain property management services for the Corporation’s properties,~~ subject to the Board of Directors’ direction, oversight, and approval. The Asset Manager iswas a wholly owned subsidiary of ~~the Manager~~BRE and all of the Corporation’s officers ~~are~~were employees of ~~the Manager.~~BRE. Accordingly, both ~~the Manager~~BRE and the Asset Manager ~~are~~were related parties of the Company. Refer to Note 3 for further discussion concerning related parties and related party transactions.

On February 7, 2020, the Corporation, the OP, BRE, and certain of their respective subsidiaries and affiliates, completed through a series of mergers (the “Mergers”) the internalization of the external management functions previously performed for the Corporation and the OP by BRE and the Asset Manager (such transactions, collectively, the “Internalization”). Upon consummation of the Internalization, the Company’s management team and corporate staff, who were previously employed by BRE, became employees of an indirect subsidiary of the OP and the Company became internally managed. Upon Internalization, the prior Property Management Agreement and Asset Management Agreement were terminated. The Internalization was not considered a “Termination Event” under the terms of the agreements and therefore no fees were paid under them as a result of the Internalization. The Internalization consisted of the acquisition of BRE in accordance with the definitive merger agreement (the “Merger Agreement”). Refer to Note 4 for further discussion regarding the Internalization, including the associated payments related thereto.

2. Summary of Significant Accounting Policies

Interim Information

The accompanying Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information (Accounting Standards Codification (“ASC”) 270, Interim Reporting) and Article 10 of the Securities and Exchange Commission’s (“SEC”) Regulation S-X. Accordingly, the Corporation has omitted certain footnote disclosures which would substantially duplicate those contained within the audited consolidated financial statements for the year ended December 31, ~~2018,~~2019, included in the Company’s ~~2018~~2019 Annual Report on Form 10-K, filed with the SEC on ~~March 14, 2019.~~February 27, 2020. Therefore, the readers of this quarterly report should refer to those audited consolidated financial statements, specifically Note 2, Summary of Significant Accounting Policies, for further discussion of significant accounting policies and estimates. The Corporation believes all adjustments necessary for a fair presentation have been included in these interim Condensed Consolidated Financial Statements (which include only normal recurring adjustments).

Principles of Consolidation

The Condensed Consolidated Financial Statements include the accounts and operations of the ~~Corporation, the Operating Company and its consolidated subsidiaries, all of which are wholly owned by the Operating Company (collectively, the “Company”).~~Company. All intercompany balances and transactions have been eliminated in consolidation.

To the extent the Corporation has a variable interest in entities that are not evaluated under the variable interest entity (“VIE”) model, the Corporation evaluates its interests using the voting interest entity model. The Corporation has complete responsibility for the day-to-day management of, authority to make decisions for, and control of the ~~Operating Company.~~OP. Based on consolidation guidance, the Corporation has concluded that the ~~Operating Company~~OP is a VIE as the members in the ~~Operating Company~~OP do not possess kick-out rights or substantive participating rights. Accordingly, the Corporation consolidates its interest in the ~~Operating Company.~~OP. However, asbecause the Corporation holds the majority voting interest in the ~~Operating Company,~~OP, it qualifies for the exemption from providing certain disclosure requirements associated with investments in VIEs.

The portion of the ~~Operating Company~~OP not owned by the Corporation is presented as non-controlling interests as of and during the periods presented.

Basis of Accounting

The Condensed Consolidated Financial Statements have been prepared in accordance with GAAP.

Use of Estimates

The preparation of Condensed Consolidated Financial Statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates include, but are not limited to, the allocation of purchase price between ~~investment in rental property~~tangible and intangible assets acquired and liabilities assumed, the value of long-lived assets and goodwill, the provision for impairment, the depreciable lives of rental property, the amortizable lives of intangible assets and liabilities, the ~~allowance~~provisions for ~~doubtful accounts,~~uncollectible rent and credit losses, the fair value of the earnout liability, the fair value of assumed debt and notes payable, the fair value of the Company’s interest rate swap agreements, and the determination of any uncertain tax positions. Accordingly, actual results may differ from those estimates.

Long-lived Asset Impairment

The Company reviews long-lived assets, other than goodwill, to be held and used for possible impairment when events or changes in circumstances indicate that their carrying amounts may not be recoverable. If, and when, such events or changes in circumstances are present, an impairment exists to the extent the carrying value of the asset or asset group exceeds the sum of the undiscounted cash flows expected to result from the use of the asset or asset group and its eventual disposition. Such cash flows include expected future operating income, as adjusted for trends and prospects, as well as the effects of demand, competition, and other factors. An impairment loss is measured as the amount by which the carrying amount of the asset or asset group exceeds the fair value of the asset or asset group. A significant judgment is made as to if and when impairment should be taken. The Company’s assessment of impairment as of June 30, 2020 was based on the most current information available to the Company. Based upon current market conditions resulting from the COVID-19 pandemic (see Note 18), certain of the Company’s properties may have fair values less than their carrying amounts. However, based on the Company’s plans with respect to those properties, the Company believes that their carrying amounts are recoverable and therefore, under applicable GAAP guidance, no impairment charges were recognized other than those described below. If the operating conditions mentioned above deteriorate or if the Company’s ~~strategy, or one or more of the assumptions described above were to change~~expected holding period for assets changes, subsequent tests for impairments could result in additional impairment charges in the ~~future, an impairment may need to be recognized.~~future.

Inputs used in establishing fair value for real estate assets generally fall within Level 3 of the fair value hierarchy, which are characterized as requiring significant judgment as little or no current market activity may be available for validation. The main indicator used to establish the classification of the inputs is current market conditions, as derived through the use of published commercial real estate market information. The Company determines the valuation of impaired assets using generally accepted valuation techniques including discounted cash flow analysis, income capitalization, analysis of recent comparable sales transactions, actual sales negotiations, and bona fide purchase offers received from third parties. Management may consider a single valuation technique or multiple valuation techniques, as appropriate, when estimating the fair value of its real estate.

During the three and ~~nine~~six months ended ~~September~~June 30, 2020 and 2019, the Company recorded impairment charges of $534 and $0, and $~~2,435~~2,667 and ~~$3,452,~~$1,017, respectively. ~~During the three and nine months ended September 30, 2018,~~

Restricted Cash

Restricted cash includes escrow funds the Company ~~recorded impairment charges of $2,061. Impairment indicators were identified due to~~ ~~concerns over the tenant’s future viability, property vacancies, and changes~~maintains pursuant to the ~~overall investment strategy for~~terms of certain mortgages, notes payable, and lease agreements, and undistributed proceeds from the ~~real estate assets. The amount~~sale of properties under Section 1031 of the ~~impairment charges were based on management’s consideration~~Internal Revenue Code of 1986, as amended (the “Code”), and is reported within Prepaid expenses and other assets in the Condensed Consolidated Balance Sheets.

Restricted cash consisted of the factors detailed above. In determining the fair value of the impaired assets at September 30, 2019 and March 31, 2019, the measurement dates, the Company utilized a capitalization rate of 14.58%, a weighted average discount rate of 8.00%, and a weighted average price per square foot of $226. In determining the fair value of the impaired assets at September 30, 2018, the measurement date, the Company utilized capitalization rates ranging from 7.50% to 10.00%, and a weighted average discount rate of 8.00%.following:

	June 30,		December 31,
(in thousands)	2020		2019
Escrow funds and other	$	601	$	2,311
Undistributed 1031 proceeds		—		5,545
	$	601	$	7,856

Revenue Recognition

The Company accounts for leases in accordance with ASC 842, Leases. The Company commences revenue recognition on its leases based on a number of factors, including the initial determination that the contract is or contains a lease. Generally, all of the Company’s property related contracts are or contain leases, and therefore revenue is recognized when the lessee takes possession of or controls the physical use of the leased assets. In most instances this occurs on the lease commencement date. At the time of lease assumption or at the inception of a new lease, including new leases that arise from amendments, the Company assesses the terms and conditions of the lease to determine the proper lease classification.

Certain of the Company’s leases require tenants to pay rent based upon a percentage of the property’s net sales (“percentage rent”) or contain rent escalators indexed to future changes in the Consumer Price ~~Index.~~Index (“CPI”). Lease income associated with such provisions is considered variable lease income and ~~therefore~~ is not included in the initial measurement of the lease receivable, or in the calculation of straight-line rent revenue. Such amounts are recognized as income when the amounts are determinable.

~~As described in~~ ~~Recently Adopted Accounting Standards~~ ~~elsewhere in Note 2, the Company adopted the provisions of Accounting Standards Update (“ASU”) 2016-02,~~ ~~Leases (Topic 842)~~ ~~and related ASUs subsequently issued (collectively, “ASC 842”) as of January 1, 2019.~~

~~Leases Executed on or After Adoption of ASC 842~~

A lease is classified as an operating lease if none of the following criteria are met: (i) ownership transfers to the lessee at the end of the lease term, (ii) the lessee has a purchase option that is reasonably expected to be exercised, (iii) the lease term is for a major part of the economic life of the leased property, (iv) the present value of the future lease payments and any residual value guaranteed by the lessee that is not already reflected in the lease payments equals or exceeds substantially all of the fair value of the leased property, and (v) the leased property is of such a specialized nature that it is expected to have no future alternative use to the Company at the end of the lease term. If one or more of these criteria are met, the lease will generally be classified as a sales-type lease, unless the lease contains a residual value guarantee from a third party other than the lessee, in which case it would be classified as a direct financing lease under certain ~~circumstances in accordance with ASC 842.~~circumstances.

~~ASC 842 requires the~~The Company ~~to account~~accounts for the right to use land as a separate lease component, unless the accounting effect of doing so would be insignificant. Determination of significance requires management judgment. In determining whether the accounting effect of separately reporting the land component from other components for its real estate leases is significant, the Company assesses: (i) whether separating the land component impacts the classification of any lease component, (ii) the value of the land component in the context of the overall contract, and (iii) whether the right to use the land is coterminous with the rights to use the other assets.

~~Leases Executed Prior to Adoption of ASC 842~~

A lease arrangement was classified as an operating lease if none of the following criteria were met: (i) ownership transferred to the lessee prior to or shortly after the end of the lease term, (ii) the lessee had a bargain purchase option during or at the end of the lease term, (iii) the lease term was greater than or equal to 75% of the underlying property’s estimated useful life, or (iv) the present value of the future minimum lease payments (excluding executory costs) was greater than or equal to 90% of the fair value of the leased property. If one or more of these criteria were met, and the minimum lease payments were determined to be reasonably predictable and collectible, the lease arrangement was generally accounted for as a direct financing lease. Consistent with ASC 840~~, Leases,~~ if the fair value of the land component was 25% or more of the total fair value of the leased property, the land was considered separately from the building for purposes of applying the lease term and minimum lease payments criterion in (iii) and (iv) above.

Revenue recognition methods for operating leases, direct financing leases, and sales-type leases are described below:

Rental property accounted for under operating leases – Revenue is recognized as rents are earned on a straight-line basis over the non-cancelable terms of the related leases. For leases that have fixed and measurable rent escalations and collectability of the lease payments is probable, the difference between such rental income earned and the cash rent due under the provisions of the lease is recorded as Accrued rental income on the Condensed Consolidated Balance Sheets. If the Company determines that collectability of the lease payments is not probable, the Company records an adjustment to Lease revenues to reduce cumulative income recognized since lease commencement to the amount of cash collected from the lessee. Future revenue recognition is limited to amounts paid by the lessee.

Rental property accounted for under direct financing leases – The Company utilizes the direct finance method of accounting to record direct financing lease income. The net investment in the direct financing lease represents receivables for the sum of future lease payments to be received and the estimated residual value of the leased property, less unamortized unearned income (which represents the difference between undiscounted cash flows and discounted cash flows). Unearned income is deferred and amortized into income over the lease terms so as to produce a constant periodic rate of return on the Company’s net investment in the leases.

Rental property accounted for under sales-type leases – For leases accounted for as sales-type leases, the Company records selling profit arising from the lease at inception, along with the net investment in the lease. The Company leases assets through the assumption of existing leases or through sale-leaseback transactions, and records such assets at their fair value at the time of acquisition, which in most cases coincides with lease inception. As a result, the Company does not generally recognize selling profit on sales-type leases. The net investment in the sales-type lease represents receivables for the sum of future lease payments and the estimated unguaranteed residual value of the leased property, each measured at net present value. Interest income is recorded over the lease terms so as to produce a constant periodic rate of return on the Company’s net investment in the leases.

Certain of the Company’s lease contracts contain nonlease components (e.g., charges for management fees, common area maintenance, and reimbursement of third-party maintenance expenses) in addition to lease components (i.e., monthly rental charges). Services related to nonlease components are provided over the same period of time as, and billed in the same manner as, monthly rental charges. The Company elected to apply the practical expedient available under ASC 842, for all classes of assets, not to separate the lease components from the nonlease components when accounting for operating leases. Since the lease component is the predominant component under each of these leases, combined revenues from both the lease and nonlease components are reported as Lease revenues, net in the accompanying Condensed Consolidated Statements of Income and Comprehensive ~~Income.~~Income (Loss).

Refer below to the Recently Adopted Accounting Standards section of this Note regarding a question and answer document released by the Financial Accounting Standards Board (“FASB”) with guidance on the application of lease accounting guidance to lease concessions provided as a result of the COVID-19 pandemic.

Rent Received in Advance

Rent received in advance represents tenant payments received prior to the contractual due date, and is included in Accounts payable and other liabilities on the Condensed Consolidated Balance Sheets. Rent received in advance is as follows:

(in thousands)

September 30,

2019

December 31,

2018

June 30,

2020

December 31,

2019

Rent received in advance

10,694

7,832

11,360

13,368

Provision for Uncollectible Rent

~~Allowance for Doubtful Accounts~~

~~Prior to the adoption of~~In accordance with ASC 842, provisions for ~~doubtful accounts were~~uncollectible rent are recorded as ~~bad debt expense and included in General and administrative expenses~~an offset to Lease revenues, net on the accompanying Condensed Consolidated Statements of Income and Comprehensive ~~Income. Subsequent~~Income (Loss). The following table summarizes the changes in the provision for uncollectible rent:

	For the three months ended June 30,					For the six months ended June 30,
(in thousands)	2020			2019		2020			2019
Beginning balance	$	1,033		$	—	$	—		$	2,086
Provision for uncollectible rent		1,190			—		2,223			440
Write-offs		(1	)		—		(1	)		(2,526	)
Ending balance	$	2,222		$	—	$	2,222		$	—

Goodwill

Goodwill represents the excess of the amount paid over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in a business combination and is assigned to one or more reporting units. The Company’s reporting unit is the ~~adoption~~same as its reportable segment. Goodwill has an indefinite life and is therefore not amortized. The Company evaluates goodwill for impairment when an event occurs or circumstances change that indicate the carrying value may not be recoverable, or at least annually. The Company will adopt an annual goodwill testing date during the fourth quarter of ~~ASC 842, provisions for doubtful accounts are recorded prospectively~~2020.

Deferred Initial Public Offering Costs

The Company has incurred certain costs in connection with its anticipated initial public offering (“IPO”). The Company capitalizes such deferred IPO costs, which primarily consist of direct, incremental legal, professional, accounting and other third-party fees. The deferred IPO costs will be offset against IPO proceeds upon the consummation of an offering. Should the planned IPO be abandoned, the deferred IPO costs will be expensed immediately as ~~an offset~~a charge to ~~Lease revenues on~~operating expenses in the ~~accompanying~~ Condensed Consolidated ~~Statements~~Statement of Income and Comprehensive ~~Income.~~ Income (Loss). At June 30, 2020 and December 31, 2019, deferred IPO costs were $1,282 and $668, respectively, and were included within Prepaid expenses and other assets on the Condensed Consolidated Balance Sheets.

Fair Value Measurements

ASC 820, Fair Value Measurements and Disclosures, defines fair value as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value.

~~The balances of financial instruments measured at fair value on a recurring basis are as follows (see Note 10):~~

September 30, 2019

(in thousands)

Total

Level 1

Level 2

Level 3

Interest rate swap, assets

$
1,120

$
—

$
1,120

$
—

Interest rate swap, liabilities

(37,489
)

—

(37,489
)

—

$
(36,369
)

$
—

$
(36,369
)

$
—

December 31, 2018

(in thousands)

Total

Level 1

Level 2

Level 3

Interest rate swap, assets

$
17,633

$
—

$
17,633

$
—

Interest rate swap, liabilities

(1,820
)

—

(1,820
)

—

$
15,813

$
—

$
15,813

$
—

The Company has estimated that the carrying amount reported on the Condensed Consolidated Balance Sheets for Cash and cash equivalents, Prepaid expenses and other assets, Tenant and other receivables, net, Accrued interest payable, and Accounts payable and other liabilities, approximates their fair values due to their short-term nature.

Recurring Fair Value Measurements

The Company measures and records its interest rate swap assets and liabilities (see Note 11) and earnout liability at fair value, and discloses the fair value of its long-term debt, on a recurring basis.

Earnout Liability – In connection with the Internalization, the Company recognized an earnout liability that will be due and payable to the former owners of BRE if certain milestones are achieved during specified periods of time following the closing of the Internalization (the “Earnout Periods”) related to either (a) the 40-day dollar volume-weighted average price of a share of the Company’s common stock (“VWAP per REIT Share”), following the completion of an IPO of the Company’s common stock, or (b) the Company’s adjusted funds from operations (“AFFO”) per share, prior to the completion of an IPO (see Note 4).

The Company utilizes third-party valuation experts to assist in estimating the fair value of the earnout liability, and develops estimates by considering weighted-average probabilities of likely outcomes, and using a Monte Carlo simulation and discounted cash flow analysis. These estimates require the Company to make various assumptions about the timing of an IPO, share price volatility, and net asset prices, each of which are unobservable and are considered Level 3 inputs in the fair value hierarchy. A change in these inputs to a different amount might result in a significantly higher or lower fair value measurement at the reporting date. As shown in the tables below, the Company’s weighted average expected IPO date upon close of the Internalization was April 15, 2020, with a range from March 2020 to May 2020. Due to the subsequent market dislocation and uncertainty presented by the COVID-19 pandemic late in the first quarter of 2020, management determined that it was not prudent to pursue an IPO at that time. As a result of recent improvement in market conditions, as of June 30, 2020, management revised its weighted average expected IPO date to October 21, 2020, with a range of September 2020 to February 2021. The Company anticipates commencing its IPO when market conditions allow, which may be before October 21, 2020. To the extent the expected IPO date advances, there would be a corresponding increase in the earnout liability’s fair value given the earnout’s fixed time horizon. Peer share price volatilities are used to estimate the Company’s expected share price volatility, and the Company’s corresponding ability to achieve the earnout targets. An increase in peer share price volatility would result in an increase in the earnout liability’s fair value. An increase in the Company’s estimated net asset value per diluted share would result in an increase in the earnout liability’s fair value.

The table below provides a summary of the significant unobservable inputs used to estimate the fair value of the earnout liability as of February 7, 2020, the transaction date.

Significant Unobservable Inputs	Weighted Average Assumption Used		Range
Expected IPO date	April 15, 2020		March 2020 through May 2020
Peer stock price volatility	20.0%		16.22% to 23.09%
Company's net asset value per diluted share	$	85.21	^(a)

^(a)

The Company’s net asset value per diluted share is primarily based on the fair value of its real estate investment portfolio, together with the fair value of its other assets and liabilities. The fair value of the Company’s real estate investment portfolio as of the measurement date was determined using market capitalization rates that ranged between 6.05% and 7.09%.

The table below provides a summary of the significant unobservable inputs used to estimate the fair value of the earnout liability as of June 30, 2020.

Significant Unobservable Inputs	Weighted Average Assumption Used		Range
Expected IPO date	October 21, 2020		September 2020 through February 2021
Peer stock price volatility	35.0%		25.67% to 58.92%
Company's net asset value per diluted share	$	71.06	^(b)

^(b)

The following table presents a reconciliation of the change in the earnout liability during the three and six months ended June 30, 2020:

	For the three months ended			For the six months ended
(in thousands)	June 30, 2020			June 30, 2020
Beginning balance	$	44,296		$	—
Allocation of Internalization purchase price at February 7, 2020		—			40,119
Change in fair value subsequent to Internalization		(6,321	)		(2,144	)
Ending balance	$	37,975		$	37,975

The decrease in the earnout liability fair value between March 31, 2020 and June 30, 2020 is primarily a result of a decrease in the estimated net asset value per share assumption used, partially offset by an increase in peer stock price volatility, both of which are attributable to changes in economic circumstances impacting global equity markets.

The balances of assets and liabilities measured at fair value on a recurring basis are as follows:

	June 30, 2020
(in thousands)	Total			Level 1		Level 2			Level 3
Interest rate swap, liabilities	$	(85,678	)	$	—	$	(85,678	)	$	—
Earnout liability		(37,975	)		—		—			(37,975	)

	December 31, 2019
(in thousands)	Total			Level 1		Level 2			Level 3
Interest rate swap, assets	$	2,911		$	—	$	2,911		$	—
Interest rate swap, liabilities		(24,471	)		—		(24,471	)		—

Long-term Debt – The fair value of the Company’s debt was estimated using Level 2 and Level 3 inputs based on recent financing transactions, estimates of the fair value of the property that serves as collateral for such debt, historical risk premiums for loans of comparable quality, current London Interbank Offered Rate (“LIBOR”), U.S. ~~treasury~~Treasury obligation interest rates, and on the discounted estimated future cash payments to be made on such debt. The discount rates estimated reflect the Company’s judgment as to the approximate current lending rates for loans or groups of loans with similar maturities and assumes that the debt is outstanding through maturity. Market information, as available, or present value techniques were utilized to estimate the amounts required to be disclosed. Since such amounts are estimates that are based on limited available market information for similar transactions and do not acknowledge transfer or other repayment restrictions that may exist on specific loans, it is unlikely that the estimated fair value of any such debt could be realized by immediate settlement of the obligation.

The following table summarizes the carrying amount reported on the Condensed Consolidated Balance Sheets and the Company’s estimate of the fair value of the Mortgages and notes payable, net, Unsecured term notes, net, and Unsecured ~~revolver:~~revolving credit facility:

(in thousands)

September 30,

2019

December 31,

2018

June 30,

2020

December 31,

2019

Carrying amount

2,096,235

1,450,551

2,038,172

1,989,451

Fair value

2,180,100

1,439,264

2,172,559

2,047,860

Non-recurring Fair Value Measurements

~~As disclosed under~~ ~~Long-lived Asset Impairment~~ ~~elsewhere in Note 2, the~~The Company’s non-recurring fair value measurements at June 30, 2020 and December 31, 2019 consisted of the fair value of impaired real estate assets that were determined using Level 3 inputs.

Right-of-Use Assets and Lease Liabilities

~~In accordance~~The Company is a lessee under non-cancelable operating leases associated with ~~ASC 842, the~~its corporate headquarters and other office spaces as well as with leases of land (“ground leases”). The Company records right-of-use assets and lease liabilities associated with ~~leases of land where it is the lessee under non-cancelable operating leases (“ground leases”).~~these leases. The lease liability is equal to the net present value of the future payments to be made under the lease, discounted using estimates based on observable market factors. The right-of-use asset is generally equal to the lease liability plus initial direct costs associated with the leases. The Company includes in the recognition of the right-of-use asset and lease liability those renewal periods that are reasonably certain to be exercised, based on the facts and circumstances that exist at lease inception. Amounts associated with percentage rent provisions are considered variable lease costs and are not included in the initial measurement of the right-of-use asset or lease liability. ~~As allowed under ASC 842, the~~The Company has made an accounting policy election, applicable to all asset types, to not separate lease from nonlease components when allocating contract consideration related to ~~ground~~operating leases.

Right-of-use assets and lease liabilities associated with ~~ground~~operating leases were included in the accompanying Condensed Consolidated Balance Sheets as follows:

		September 30,			June 30,		December 31,
(in thousands)	Financial Statement Presentation	2019		Financial Statement Presentation	2020		2019
Right-of-use assets	Prepaid expenses and other assets	$	1,654	Prepaid expenses and other assets	$	3,313	$	1,614
Lease liabilities	Accounts payable and other liabilities		1,246	Accounts payable and other liabilities		2,924		1,209

~~Taxes Collected From Tenants~~Earnout Liability

The Company’s earnout liability is payable in a combination of cash, common shares, and ~~Remitted~~OP Units, in the same proportion as the initial consideration paid in the Internalization (see Note 4). The common shares and OP Units payable under the arrangement will be subject to ~~Governmental Authorities~~

~~A majority~~a redemption rights agreement, whereby holders of the ~~Company’s properties are leased on a triple-net basis, which provides that~~common shares and OP Units will have the ~~tenants are responsible for the payment of all property operating expenses, including, but not limited~~right to ~~property taxes, maintenance, insurance, repairs, and capital costs, during the lease term. The Company records such expenses on a net basis. In other situations,~~require the Company ~~may collect property taxes from its tenants~~to repurchase any or all of the common shares or OP Units if an IPO has not occurred on or before December 31, 2020 (see discussion of the redemption rights agreement in Note 4). The common shares and ~~remit those taxes~~OP Units are deemed to ~~governmental authorities. Taxes collected from tenants~~be freestanding financial instruments that, at inception, embody an obligation to repurchase the Company’s common shares and ~~remitted to governmental authorities are presented~~OP Units, and therefore have been classified as liabilities together with the cash portion of the earnout. The fair value of the earnout liability at the time of the Internalization was recorded in Earnout liability on ~~a gross basis, where amounts billed to tenants are included in Lease revenues, and~~ the ~~corresponding expense is included in Property and operating expense, in the accompanying~~ Condensed Consolidated ~~Statements of Income and Comprehensive Income.~~

~~Rental Expense~~

Rental expense associated with ground leases is recorded on a straight-line basis over the term of each lease, for leases that have fixed and measurable rent escalations. Under the provisions of ASC 842, the difference between rental expense incurred on a straight-line basis and the cash rental payments due under the provisions of the lease is recordedBalance Sheets as part of the ~~right-of-use asset in~~purchase price allocation. The fair value of the ~~accompanying September 30, 2019 Condensed Consolidated Balance Sheet. Prior to the adoption of ASC 842, at December 31, 2018, this difference was~~earnout liability is remeasured each reporting period, with changes recorded as ~~a deferred liability and was included as a component of Accounts payable and other liabilities~~Change in the accompanying Condensed Consolidated Balance Sheets. Amounts associated with percentage rent provisions based on the achievement of sales targets are recognized as variable rental expense when achievement of the sales targets is considered probable. Rental expense is included in Property and operating expenses on the accompanying Condensed Consolidated Statements of Income and Comprehensive Income.

~~Recently Adopted Accounting Standards~~

~~In February 2016, the FASB issued ASU 2016-02,~~ ~~Leases (Topic ASC 842)~~, which superseded the existing guidance for lease accounting, ASC 840. ASC 842 is effective January 1, 2019, with early adoption permitted. The guidance requires lessees to recognize a right-of-use asset and a corresponding lease liability, initially measured at the presentfair value of lease payments, for both operating and financing leases. Under the new pronouncement, lessor accounting is largely unchanged from prior GAAP, however disclosures were expanded. The Company adopted ASC 842 on January 1, 2019 on a modified retrospective basis and elected the following practical expedients:

The “Package of Three,” which allows an entity to not reassess (i) whether any expired or existing contracts are, or contain, leases, (ii) the lease classification for any expired or existing leases, and (iii) initial direct costs for existing leases.

The optional transition method to initially apply the guidance of ASC 842 at the adoption date and to recognize a cumulative-effect adjustment to the opening balance of retained earnings. As a result of electing this practical expedient, the Company’s reporting for the comparative periods presented will continue to beearnout liability in ~~accordance with ASC 840, including the required disclosures.~~

The ability to make an accounting policy election, by class of underlying asset, to not separate nonlease components from the associated lease component and to account for those components as a single component if certain conditions are met.

ASC 842 requires all income from leases to be presented as a single line item, rather than the prior presentation where rental income from leases was shown separately from amounts billed and collected as reimbursements from tenants on the Condensed Consolidated Statements of Income and Comprehensive Income. In addition, bad debt expense is required to be recorded as an adjustment to Lease revenues, rather than recorded within Operating expenses on the Condensed Consolidated Statements of Income and Comprehensive Income ~~as had previously been the case.~~(Loss).

Mezzanine Equity

The Company ~~is primarily a lessor~~issued common shares and ~~therefore adoption of ASC 842 did not have a material impact on its Condensed Consolidated Financial Statements. Upon adoption of ASC 842, it was not necessary~~OP Units as base consideration for the ~~Company~~Internalization, each of which were subject to ~~record~~ a ~~cumulative-effect adjustment~~redemption rights agreement, where the common shares (“mezzanine equity common stock”) and OP Units (“mezzanine equity non-controlling interests”) are economically equivalent to the ~~opening balance~~permanent equity classified common shares and OP Units with the exception of ~~retained earnings, however the Company recognized a right-of-use asset and corresponding lease liability~~certain contingent redemption rights that are not yet exercisable as of ~~January 1, 2019,~~June 30, 2020 (see discussion of ~~$1,687 and $1,261, respectively, related to operating leases where it is the lessee (see~~redemption rights agreement in Note ~~16). The right-of-use asset was recorded net of a previously recorded straight-line rent liability of $7 and ground lease intangible asset, net of $432 as of the date of adoption.~~

~~In October 2018, the FASB issued ASU 2018-16,~~ ~~Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes~~. Previously under Topic 815, the eligible benchmark interest rates in the United States were the interest rates on direct Treasury obligations of the U.S. government (UST), the LIBOR swap rate, the OIS Rate based on the Fed Funds Effective Rate, and the Securities Industry and Financial Markets Association (SIFMA) Municipal Swap Rate, which was introduced in ASU 2017-12, ~~Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities~~ ~~(“ASU 2017-12”). The amendments in ASU 2018-16 permit the use of the OIS rate based on SOFR as a benchmark interest rate for hedge accounting purposes under Topic 815~~. The amendments in this update were effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years for public business entities that already adopted the amendments in ASU 2017-12 (which the Company adopted effective January 1, 2018)4). The Company ~~adopted ASU 2018-16~~presents the mezzanine equity common stock and mezzanine equity non-controlling interests as mezzanine equity in the Condensed Consolidated Balance Sheets as they are redeemable outside the Company’s control.

The Company subsequently records mezzanine equity common stock at redemption value each reporting period, with changes in carrying value recorded as a component of ~~January 1, 2019 on a prospective basis for qualifying new or redesignated hedging relationships entered into on or after the date of adoption. Adoption of this guidance had no impact~~Additional paid-in capital on the Condensed Consolidated ~~Financial Statements.~~Balance Sheets.

~~Other~~ The Company subsequently records mezzanine equity non-controlling interests at the greater of (i) carrying amount, increased or decreased for the non-controlling interests’ share of net income or loss, dividends and comprehensive income or loss or (ii) redemption value. Changes in carrying value of mezzanine equity non-controlling interests are recorded as a component of Additional paid-in capital on the Condensed Consolidated Balance Sheets.

Recently ~~Issued~~Adopted Accounting Standards

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses which ~~changes~~changed how entities measure credit losses for most financial assets. Financial assets that are measured at amortized cost ~~will be~~are required to be presented at the net amount expected to be collected with ~~an allowance~~a provision for credit losses deducted from the amortized cost basis. The guidance requires an entity to utilize broader information in estimating the expected credit loss, including forecasted information. In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments – Credit Losses which clarified that operating lease receivables recorded by lessors are explicitly excluded from the scope of this guidance. ~~In May 2019, the FASB issued ASU 2019-05,~~ ~~Financial Instruments – Credit Losses (Topic 326): Targeted Transition Relief, which provides entities with an option to irrevocably elect the fair value option for eligible instruments upon adoption of Topic 326.~~ ASU 2016-13 isand ASU 2018-09 (collectively, “ASC 326”) were effective January 1, 2020, ~~with early adoption permitted beginning on January 1, 2019,~~ under a modified retrospective application. The ~~Company continues~~new guidance applies to ~~evaluate~~ the Company’s investments in direct financing leases. Due to the nature of its activities, the Company’s lease portfolio has historically not included a significant number of direct financing leases, and as a result the adoption of ASC 326 did not have a material impact ~~this new standard will have~~ on its ~~Condensed Consolidated Financial Statements, including~~

financial statements. In connection with the ~~transition relief provisions, but does not expect such impact will be material based upon~~adoption of ASC 326, the ~~composition~~Company recorded a provision for credit losses of ~~its current lease portfolio.~~$323 with an offsetting cumulative-effect adjustment to the opening balance of retained earnings as of January 1, 2020.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The amendments under ASU 2018-13 remove, add, and modify certain disclosure requirements on fair value measurements in ASC 820. The amendments ~~are~~were effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The Company ~~is currently evaluating the impact~~adopted the new standard ~~will have on its Condensed Consolidated Financial Statements and expects to adopt the new disclosures~~ on a prospective basis on January 1, 2020. The modifications and new disclosures required by the new standard primarily relate to disclosures concerning recurring Level 3 fair value measurements.

In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments which ~~clarifies~~clarified and ~~improves~~improved guidance within the recently issued standards on credit losses, hedging, and recognition and measurement of financial instruments. The Company ~~will assess~~assessed the impact of the changes to Topic 326 in connection with its adoption of ASU ~~2018-13~~2016-13 discussed above. The provisions of ASU 2019-04 relating

to Topics 815 and 825 relate to clarifying the provisions of existing guidance that are ~~effective~~not applicable to the Company.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on ~~January 1, 2020.~~Financial Reporting, which provides optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting affected by reference rate reform if certain criteria are met. ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. During the first quarter of 2020, the Company elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company ~~is currently evaluating~~continues to evaluate the impact of ~~adopting ASU 2019-04, but does not anticipate~~the guidance and may apply other elections as applicable as additional changes in the market occur.

In April 2020, the FASB staff issued a question and answer document (the “Lease Modification Q&A”) that ~~it will~~focused on the application of lease accounting guidance to lease concessions provided as a result of the COVID-19 pandemic. Under ASC 842, economic relief that was agreed to or negotiated outside of the original lease agreement is typically considered a lease modification, in which case both the lessee and lessor would be required to apply the respective modification frameworks. However, if the lessee was entitled to the economic relief because of either contractual or legal rights, the relief would be accounted for outside of the modification framework. Although the original lease modification guidance in ASC 842 remains appropriate to address routine lease modifications, the Lease Modification Q&A established a different framework to account for certain lease concessions granted in response to the COVID-19 pandemic, if certain criteria have been met. The Lease Modification Q&A allows the Company to make an accounting policy election to account for COVID-19 related lease concessions as either a ~~material~~lease modification or a negative variable adjustment to rental revenue. Such election is required to be applied consistently to leases with similar characteristics and similar circumstances. Refer to Note 18, COVID-19 Pandemic regarding information on COVID-19 related concessions and the associated impact on ~~its financial statements.~~the Company’s results of operations.

Reclassifications

~~Certain prior-period amounts have been~~The Company reclassified ~~to conform with the current period’s presentation, including certain items described below which resulted~~$305 and $748 of Income taxes from ~~the adoption~~a component of ~~ASC 842.~~

~~Components of revenue that were previously reported as Rental income from operating leases, Earned income from direct financing leases,~~ Operating expenses ~~reimbursed from tenants, and~~to a component of Other income ~~from real estate transactions,~~(expenses), on the Condensed Consolidated Statements of Income and Comprehensive Income ~~have been combined~~(Loss) for the three and ~~reported as Lease revenues~~six months ended June 30, 2019, respectively, to conform with the current period presentation. The reclassification is a change from one acceptable presentation to another acceptable presentation.

The Company reclassified $272 of Internalization expenses from General and administrative expenses to a component of Other income (expenses) on the Condensed Consolidated Statements of Income and Comprehensive Income ~~as follows:~~

As originally reported

For the three months ended

For the nine months ended

(in thousands)

September 30, 2018

September 30, 2018

Revenues

Rental income from operating leases

$
58,189

$
163,611

Earned income from direct financing leases

1,017

2,936

Operating expenses reimbursed from tenants

2,529

7,764

Other income from real estate transactions

29

74

Total revenues

$
61,764

$
174,385

As revised

For the three months ended

For the nine months ended

(in thousands)

September 30, 2018

September 30, 2018

Revenues

Lease revenues

$
61,764

$
174,385

~~In addition, as discussed above, in connection with recording the transition adjustment~~(Loss) for the ~~right-of-use asset related to operating leases where the Company is the lessee, amounts reported as ground lease intangible assets, net~~three and ~~ground lease straight-line rent liabilities on the Condensed Consolidated Balance Sheet at December 31, 2018, were reclassified as of January 1,~~six months ended June 30, 2019, ~~and are now included as components of the right-of-use asset.~~

~~The Company reclassified Restricted cash of $377 and Tenant and capital reserves of $1,136 to Prepaid expenses and other assets on the Condensed Consolidated Balance Sheets at December 31, 2018,~~ to conform with the current period presentation. Additionally, Tenant improvement allowances of $2,125 were reclassified to Accounts payable and other liabilities on the Condensed Consolidated Balance Sheets at December 31, 2018, to conform with the current presentation. The ~~reclassifications are changes~~reclassification is a change from one acceptable presentation to another acceptable presentation.

3. Related-Party Transactions

Prior to the Internalization on February 7, 2020, BRE, a related party in which certain directors of the Corporation had either a direct or indirect ownership interest, and the Asset Manager were considered to be related parties.

Property Management Agreement

The Corporation and the ~~Operating Company are a party~~OP were parties to a property management agreement (as amended, the “Property Management Agreement”) with ~~the Manager, a related party in which certain directors of the Corporation have either a direct or indirect ownership interest.~~BRE. Under the terms of the Property Management Agreement, ~~the Manager manages~~BRE managed and ~~coordinates~~coordinated certain aspects of the leasing of the Corporation’s rental property.

In exchange for services provided under the Property Management Agreement, ~~the Manager receives~~BRE received certain fees and other compensation as follows:

(i)

3% of gross rentals collected each month from the rental property for property management services (other than one property, which ~~calls~~called for 5% of gross rentals under the Property Management Agreement); and

(ii)

Re-leasing fees for existing rental property equal to one month’s rent for a new lease with an existing tenant and two months’ rent for a new lease with a new tenant.

~~The Property Management Agreement automatically renewed on January 1, 2019 for three years ending December 31, 2021, subject to earlier termination pursuant to the terms~~Upon completion of the ~~Property Management Agreement. The Property Management Agreement provides for termination: (i) immediately by the Corporation’s Independent Directors Committee (“IDC”) for Cause, as defined in~~Internalization, the Property Management Agreement ~~(ii) by the IDC, upon 30 days’ written notice~~was terminated and there will be no future property management fees payable to ~~the Manager, in connection with~~BRE. The Internalization was not considered a ~~change in control of the Manager, as defined in~~“Termination Event” under the Property Management Agreement, ~~(iii) by~~so no fees were payable to BRE as a result of the ~~IDC, by providing~~Internalization. See Note 4 for further discussion regarding the ~~Manager with written notice of termination not less than one year prior to~~Internalization, including the last calendar day of any renewal term, (iv) by the Manager upon written notice to the Company not less than one year prior to the last calendar day of any renewal period, (v) automatically in the event of a Termination Event, as defined in the Property Management Agreement, and (vi) by the IDC upon a Key Person Event, as defined in the Property Management Agreement.

If the Corporation terminates the agreement prior to any renewal term or in any manner described above, other than termination by the Corporation for Cause, the Corporation will be subject to a termination fee equal to three times the Management Fees, as defined in the Property Management Agreement, to which the Manager was entitled during the 12-month period immediately preceding the date of such termination. Although not terminable at September 30, 2019, if the Property Management Agreement had been terminated at September 30, 2019, subject to the conditions noted above, the termination fee would have been $22,965.associated payments related thereto.

Asset Management Agreement

The Corporation and the ~~Operating Company are party~~OP were parties to an asset management agreement (as amended, the “Asset Management Agreement”) with the Asset Manager, a single member limited liability company ~~with~~of which BRE was the ~~Manager as the single~~sole member, and therefore a related party in which certain directors of the Corporation ~~have~~had an indirect ownership interest. Under the terms of the Asset Management Agreement, the Asset Manager iswas responsible for, among other things, the Corporation’s acquisition, initial leasing, and disposition strategies, financing activities, and providing support to the Corporation’s ~~IDC~~Independent Directors Committee (“IDC”) for its valuation functions and other duties. The Asset Manager also ~~nominates~~nominated two individuals to serve on the Board of Directors of the Corporation.

Under the terms of the Asset Management Agreement, the Asset Manager iswas compensated as follows:

(i)

a quarterly asset management fee equal to 0.25% of the aggregate value of common stock, based on the per share value as determined by the IDC each quarter, on a fully diluted basis as if all interests in the ~~Operating Company~~OP had been converted into shares of the Corporation’s common stock;

(ii)

0.5% of the proceeds from future equity closings as reimbursement for offering, marketing, and brokerage expenses;

(iii)

1% of the gross purchase price paid for each rental property acquired (other than acquisitions described in (iv) below), including any property contributed in exchange for membership interests in the ~~Operating Company;~~OP;

(iv)

2% of the gross purchase price paid for each rental property acquired in the event that the acquisition of a rental property ~~requires~~required a new lease (as opposed to the assumption of an existing lease), such as a sale-leaseback transaction;

(v)

1% of the gross sale price received for each rental property disposition; and

(vi)

1% of the Aggregate Consideration, as defined in the Asset Management Agreement, received in connection with a ~~Disposition Event. The Asset Management Agreement defines a Disposition Event in the same manner~~disposition event, as ~~a Termination Event is~~ defined in the ~~Property~~Asset Management ~~Agreement discussed above.~~Agreement.

~~The Asset Management Agreement automatically renewed on January 1, 2019 for three years ending December 31, 2021, subject to earlier termination pursuant to the terms~~Upon completion of the ~~Asset Management Agreement. The Asset Management Agreement provides for termination: (i) immediately by the IDC for Cause, as defined in~~Internalization, the Asset Management Agreement ~~(ii) by~~was terminated and there will be no future asset management fees payable to the ~~IDC, upon 30 days’ written notice~~Asset Manager. The Internalization was not considered a “Termination Event” under the Asset Management Agreement, so no fees were payable to the Asset Manager ~~in connection with~~as a ~~change in control~~result of the ~~Asset Manager, as defined in~~Internalization. See Note 4 for further discussion regarding the ~~Asset Management Agreement, (iii) by~~Internalization, including the IDC, by providing the Asset Manager with written notice of termination not less than one year prior to the last calendar day of any renewal term, (iv) by the Asset Manager upon written notice to the Company not less than one year prior to the last calendar day of any renewal period, (v) automatically in the event of a Disposition Event, as defined in the Asset Management Agreement, and (vi) by the IDC upon a Key Person Event, as defined in the Asset Management Agreement.associated payments related thereto.

If the Corporation terminates the agreement prior to any renewal term or in any manner described above, other than termination by the Corporation for Cause, the Corporation will be required to pay to the Asset Manager a termination fee equal to three times the Asset Management Fee to which the Asset Manager was entitled during the 12-month period immediately preceding the date of such termination. Although not terminable at September 30, 2019, if the Asset Management Agreement had been terminated at September 30, 2019, subject to the conditions noted above, the termination fee would have been $63,306.

Total fees incurred under the Property Management Agreement and Asset Management Agreement ~~are~~were as follows:

(in thousands)		For the three months ended September 30,				For the nine months ended September 30,					For the three months ended June 30,				For the six months ended June 30,
Type of Fee	Financial Statement Presentation	2019		2018		2019		2018		Financial Statement Presentation	2020^(a)		2019		2020^(a)		2019
Asset management fee	Asset management fees	$	5,610	$	4,663	$	16,048	$	13,119	Asset management fees	$	—	$	5,318	$	2,461	$	10,438
Property management fee	Property management fees		2,098		1,680		5,918		4,792	Property management fees		—		1,935		1,275		3,820
Total management fee expense			7,708		6,343		21,966		17,911			—		7,253		3,736		14,258

Marketing fee (offering costs)	Additional paid-in capital		703		297		1,303		822	Additional paid-in capital		—		300		—		600
Acquisition fee	Capitalized as a component of assets acquired		7,932		1,105		9,937		3,491	Capitalized as a component of assets acquired		—		1,275		—		2,005
Leasing fee	Leasing fees, net		312		148		747		1,325
Leasing fee and re-leasing fees										Leasing fees, net		—		177		—		435
Disposition fee	Gain on sale of real estate		596		116		947		439	Gain on sale of real estate		—		238		109		351
Total management fees		$	17,251	$	8,009	$	34,900	$	23,988		$	—	$	9,243	$	3,845	$	17,649

^(a)	Fees were payable under the Property Management Agreement and Asset Management Agreement from January 1, 2020 through February 6, 2020. The Internalization was effective February 7, 2020.

~~Included in Due to related parties on the Condensed Consolidated Balance Sheets~~There were no unpaid management fees at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018, are $433 and $114 of unpaid management fees, respectively.~~2019. All fees related to the Property Management Agreement and the Asset Management Agreement ~~are~~were paid for in cash within the Company’s normal payment cycle for vendors.

Tax Protection Agreement

Upon closing of the Internalization, the Company entered into an agreement with Amy L. Tait, the Company’s founder, and certain members of her family (“Founding Owners”), pursuant to which the OP agreed to indemnify the Founding Owners against the applicable income tax liabilities resulting from the sale, exchange, transfer or other disposal of the assets of BRE that the Company acquired in the Internalization, through February 7, 2030, or the Company’s failure to allocate specific types of the OP’s indebtedness to the Founding Owners (the “Founding Owners’ Tax Protection Agreement”). The maximum amount the Company may be liable for under the Founding Owners’ Tax Protection Agreement is $10,000.

Earnout Consideration

In connection with the Internalization, the Company incurred a contingent liability that would be payable to certain members of the Company’s Board of Directors and employees who had previously been owners and/or employees of BRE, upon the occurrence of certain events (see Note 4). The fair value of the earnout liability was $37,975 as of June 30, 2020.

Related Party Lease

In connection with the Internalization, the Company assumed the lease agreement relating to the Company’s principal executive office with Clinton Asset Holdings Associates, L.P., an affiliated third party, approximately 1.6% of which is indirectly owned by the Company’s Chairman and member of the Board of Directors. The lease of 24,072 square feet of office space expires on August 31, 2023, and contains two five-year renewal options. The annual rent for 2020 is approximately $547, with 2% annual increases thereafter. See further discussion in Note 16.

4. ~~Acquisitions~~Internalization

On February 7, 2020, the Company completed the Internalization and the Company’s management team and corporate staff, who were previously employed by BRE, became employees of an indirect subsidiary of the OP.

The consideration paid at closing of the Internalization is summarized in the following table:

(in thousands)
Issuance of 781 shares of common stock	$	66,376
Issuance of 1,320 OP Units		112,159
Cash		30,981
Base consideration		209,516
Initial estimate of fair value of earnout liability		40,119
Total consideration	$	249,635

The Company may be required to pay additional earnout consideration of up to $75,000 payable in four tranches of $10,000, $15,000, $25,000, and $25,000 if certain milestones related to either (a) the 40-day VWAP per REIT Share, following the completion of an IPO, or (b) the Company’s AFFO per share, prior to the completion of an IPO, (each, an “Earnout Trigger”) are achieved during the Earnout Periods. The consideration will consist of a combination of cash, shares of the Company’s common stock, and OP Units, based on the same proportions paid in the base consideration.

The earnout tranches, applicable 40-day VWAP of a REIT Share and AFFO per share, and the applicable Earnout Periods are as follows:

(in thousands, except per share amounts)	If the Company has completed an IPO		If the Company has not completed an IPO
Earnout Tranche^(a)	40-Day VWAP of a REIT Share	Applicable Earnout Period	AFFO per Share	Applicable Earnout Period
$10,000	$90.00	The two-year period beginning on the earlier of (i) the IPO closing date or (ii) December 31, 2020.	$5.85	The two-year period consisting of the calendar years ended December 31, 2020 and December 31, 2021.
$15,000	$95.00	The two-year period beginning on the earlier of (i) the IPO closing date or (ii) December 31, 2020.	$5.95	The two-year period consisting of the calendar years ended December 31, 2020 and December 31, 2021.
$25,000	$97.50	The four-year period beginning on the date that is exactly one year after the earnout period begins for the first and second tranches above.	$6.30	The four-year period consisting of the calendar years ended December 31, 2021, December 31, 2022, December 31, 2023 and December 31, 2024.
$25,000	$100.00	The four-year period beginning on the date that is exactly one year after the earnout period begins for the first and second tranches above.	$6.70	The four-year period consisting of the calendar years ended December 31, 2021, December 31, 2022, December 31, 2023 and December 31, 2024.

^(a)	Initial contractual value of applicable earnout tranche based on an $85.00 price per share/unit of common stock and OP Units. Does not take into account the actual per share price of common stock and OP Units at the time an applicable earnout tranche may be earned and paid.

Should all earnout milestones be met, an additional 272 shares of common stock and an additional 465 OP Units would be issued, in addition to the payment of $12,349 in cash. As of the Internalization date, the Company estimated that the earnout liability had a fair value of $40,119, of which approximately $33,511 related to the potential issuance of common shares and OP Units and approximately $6,608 related to the potential payment of cash. The Company will estimate the fair value of the earnout liability at each reporting date during the contingency period and record any changes in estimated fair value in its Condensed Consolidated Statement of Income and Comprehensive Income (Loss).

Redemption Rights Agreement

The mezzanine equity common stock and mezzanine equity non-controlling interests issued in connection with the Internalization are economically equivalent to permanent equity common shares and OP Units with the exception of certain contingent redemption rights that are not yet exercisable as of June 30, 2020. If an IPO does not occur on or before December 31, 2020, then each holder of mezzanine equity common stock and mezzanine equity non-controlling interests shall have the right to require the Company to repurchase any or all of such holder’s shares and OP Units at a price equal to the greater of (i) the initial fair value of $85 of the common shares or OP Units at the date of the Internalization or (ii) the current fair value of such common shares or OP Units, as adjusted for interest and distributions. Such repurchases can occur during the period from January 1, 2021 until the earlier of 12 months thereafter or the date of an IPO; provided that the period shall not begin on January 1, 2021 if the Company, in connection with an IPO, shall have filed a registration statement with the SEC that has not been withdrawn as of January 1, 2021 (but the period shall begin immediately upon any such withdrawal and then continue until the earlier of 12 months thereafter or until the occurrence of an IPO); provided, further, that the period shall begin no later than July 1, 2021 (even if such registration statement shall not have been withdrawn as of July 1, 2021) and in such event shall continue until the earlier of twelve (12) months thereafter or the occurrence of an IPO. The Merger Agreement did not provide that the completion of an IPO is a condition to the closing of the Internalization. Subsequent to June 30, 2020, such repurchase rights have been irrevocably waived by each of the named executive officers.

If an IPO does not occur on or before the satisfaction of any Earnout Trigger, then each holder of common shares or OP Units issued under the earnout shall have the right to require the Company to repurchase any or all of such holder’s shares or OP Units at a price equal to the greater of (i) the initial fair value of $85 of the common shares at the date of the Internalization or (ii) the current fair value of such common shares, as adjusted for interest and distributions. Such repurchases can occur during the period from the date of

issuance of such earnout shares until the earlier of 12 months thereafter or the occurrence of an IPO; provided, further, that such period shall not begin on such date of issuance if the Company, in connection with an IPO, shall have filed a registration statement with the SEC that has not been withdrawn as of such date of issuance (but such period shall begin immediately upon any such withdrawal and then continue until the earlier of 12 months thereafter or the occurrence of an IPO; provided, further, that such period shall begin no later than six months after such date of issuance (even if such registration statement shall not have been withdrawn as of such date) and in such event shall continue until the earlier of 12 months thereafter or the occurrence of an IPO.

Allocation of Purchase Price

The Internalization was accounted for as a business combination and accordingly, the Company allocated the purchase price utilizing the acquisition method to record assets acquired and liabilities assumed at their estimated fair values.

The allocation of the purchase price has not been finalized and is based upon preliminary estimates of these fair values, which is the best available information at the current time. The final determination of the fair values of the assets and liabilities will be based on the actual valuations of the tangible and intangible assets and liabilities that existed as of the date of completion of the acquisition, including the valuation of the earnout liability. The Company expects to finalize the valuations during the measurement period, not to exceed one year from the date of the Internalization. Consequently, amounts preliminarily allocated to identifiable tangible and intangible assets and liabilities could change.

The following table summarizes the Company’s preliminary allocation of the purchase price associated with the Internalization:

(in thousands)
Prepaid expenses and other assets	$	1,336
Right-of-use assets		1,898
Goodwill		339,769
Accounts payable and other liabilities		(986	)
Operating lease liabilities		(1,898	)
Debt		(90,484	)
	$	249,635

In connection with the Internalization, the Company recorded goodwill of $339,769 as a result of the consideration exceeding the fair value of the net liabilities acquired. Goodwill represents the synergies and costs savings expected from the acquired management functions and the Company’s ability to generate additional portfolio growth on a lower cost structure than when it was externally managed. The Company does not expect that the goodwill will be deductible for tax purposes.

In connection with the Internalization, the Company assumed $90,484 of debt which was subsequently repaid through a combination of borrowings under its Revolving Credit Facility (as defined below) and entering into a new $60,000 term loan agreement (see Note 9).

The Company incurred $389 and $1,594 in non-recurring costs associated with the Internalization during the three and six months ended June 30, 2020, respectively, and $272 of such costs during the three and six months ended June 30, 2019, which were classified as Internalization expenses in the Condensed Consolidated Statements of Income and Comprehensive Income (Loss).

The effect of the Internalization has been reflected in the Company’s operating results beginning on February 7, 2020. No incremental revenues were recorded as a result of the Internalization. Subsequent to the Internalization, during the three and six months ended June 30, 2020, the Company incurred $4,572 and $8,234, respectively, in expenses as a result of being internalized. Such amounts include general and administrative expenses associated with the Company’s performance of functions previously performed by BRE and the Asset Manager (primarily employee related costs), as well as interest expense associated with the borrowings related to the Internalization. These expenses do not include the Internalization expenses discussed above, or amounts recorded to reflect changes in the fair value of the earnout liability.

Condensed Pro Forma Financial Information

The following pro forma information summarizes selected financial information from the Company’s combined results of operations, as if the Internalization had occurred on January 1, 2019. These results contain certain adjustments totaling $389 and $6,137 of income, respectively, for the three and six months ended June 30, 2020 and $7,343 and $13,973 of income, respectively, for the three and six months ended June 30, 2019. These pro forma adjustments reflect the elimination of Internalization expenses and asset management, property management, and disposition fees between the Company and BRE and the Asset Manager in historic financial results, and adjustments to reflect incremental interest expense associated with the borrowing related to the Internalization. This pro forma information is presented for informational purposes only, and may not be indicative of what actual results of operations would have been had the Internalization occurred at the beginning of the period, nor does it purport to represent the results of future operations.

The condensed pro forma financial information is as follows for the three and six months ended June 30, 2020 and 2019:

	For the three months ended June 30,				For the six months ended June 30,
(in thousands)	2020		2019		2020		2019
Revenues	$	80,371	$	69,053	$	158,602	$	137,483
Net income		17,487		19,026		31,340		36,964

5. Acquisitions of Rental Property

The Company did not complete any acquisitions of rental property during the six months ended June 30, 2020. The Company closed on the following acquisitions of rental property during the ~~nine~~six months ended ~~September~~June 30, 2019:

(in thousands, except number of properties)	(in thousands, except number of properties)		Number of		Real Estate			(in thousands, except number of properties)		Number of		Real Estate
Date		Property Type	Properties		Acquisition Price				Property Type	Properties		Acquisition Price
January 31, 2019		Healthcare		1	$	4,747			Healthcare		1	$	4,747
March 12, 2019		Industrial		1		10,217			Industrial		1		10,217
March 15, 2019		Retail		10		13,185			Retail		10		13,185
March 19, 2019		Retail		14		19,128			Retail		14		19,128
March 26, 2019		Industrial		1		25,801			Industrial		1		25,801
April 30, 2019		Other		1		76,000	^(a)		Industrial		1		76,000	^(a)
May 21, 2019		Retail		2		6,500			Retail		2		6,500
May 31, 2019		Retail		1		3,192			Retail		1		3,192
June 7, 2019		Other		1		30,589			Office		1		30,589
June 26, 2019		Industrial		2		11,180			Industrial		2		11,180
July 15, 2019		Retail		1		3,214
July 15, 2019		Industrial		1		11,330
July 31, 2019		Healthcare		5		27,277
August 27, 2019		Industrial		1		4,404
August 29, 2019		Industrial/Office/Other		23		735,740
September 17, 2019		Industrial		1		11,185
				66	$	993,689	^(b)				34	$	200,539	^(b)

^(a)(^a)

In conjunction with this acquisition, the Company assumed a mortgage with a principal balance of $49,782 with an interest rate of 4.92% and a maturity date of February 2028 (see Note 9)10).

^(b)	Acquisition price does not include capitalized acquisition costs of ~~$16,647.~~$5,030.

~~The Company closed on the following acquisitions during the nine months ended September 30, 2018:~~

(in thousands, except number of properties)

Number of

Real Estate

Date

Property Type

Properties

Acquisition Price

March 27, 2018

Industrial

1

$
22,000

March 30, 2018

Industrial/Retail

26

78,530

April 30, 2018

Other

1

16,170

June 6, 2018

Industrial

1

8,500

June 14, 2018

Industrial

1

39,700

June 14, 2018

Retail

6

14,479

June 21, 2018

Retail

1

20,231

June 21, 2018

Industrial

1

38,340

^(c)
June 29, 2018

Industrial

1

10,400

June 29, 2018

Retail

2

6,433

July 12, 2018

Industrial

1

11,212

July 17, 2018

Retail

5

14,845

July 17, 2018

Office

1

34,670

August 6, 2018

Industrial

2

4,802

August 10, 2018

Retail

20

44,977

70

$
365,289

^(d)

^(c)	~~In conjunction with this acquisition, the Company assumed a mortgage with a principal balance of $20,845 with an interest rate of 4.36% and a maturity date of August 2025 (see Note 9).~~

^(d)	~~Acquisition price does not include capitalized acquisition costs of $8,019.~~

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

For the nine months ended
September 30,

(in thousands)

2019

2018

Land

$
155,434

$
47,930

Land improvements

44,929

20,815

Buildings and other improvements

745,116

271,696

Equipment

—

2,891

Acquired in-place leases^(e)

77,868

36,342

Acquired above-market leases^(f)

2,800

3,347

Acquired below-market leases^(g)

(15,811
)

(10,143
)
Direct financing investments

—

430

Mortgages payable

(49,782
)

(20,845
)

$
960,554

$
352,463

(in thousands)	For the six months ended June 30, 2019
Land	$	13,339
Land improvements		16,758
Buildings and improvements		154,107
Acquired in-place leases^(c)		19,942
Acquired above-market leases^(d)		2,281
Acquired below-market leases^(e)		(858	)
Mortgage payable		(49,782	)
	$	155,787

^(c)	The weighted average amortization period for acquired in-place leases is 15 years for acquisitions completed during the six months ended June 30, 2019.

^(d)	The weighted average amortization period for acquired above-market leases is 17 years for acquisitions completed during the six months ended June 30, 2019.

^(e)	The weighted average amortization period for acquired ~~in-place~~below-market leases is ~~13 years and 14~~12 years for acquisitions completed during the ~~nine~~six months ended ~~September~~June 30, ~~2019 and 2018, respectively.~~

^(f)	~~The weighted average amortization period for acquired above-market leases is 18 years and 15 years for acquisitions completed during the nine months ended September 30, 2019 and 2018, respectively.~~

^(g)	~~The weighted average amortization period for acquired below-market leases is 10 years and 13 years for acquisitions completed during the nine months ended September 30, 2019 and 2018, respectively.~~2019.

The above acquisitions were funded using a combination of available cash on hand, borrowings under the Company’s ~~unsecured revolving line of credit and unsecured term loan agreements,~~Revolving Credit Facility, and proceeds from equity issuances. All real estate acquisitions closed during the ~~nine~~six months ended ~~September~~June 30, 2019, ~~and 2018,~~ qualified as asset acquisitions and, as such, acquisition costs ~~were~~have been capitalized.

~~Subsequent to September 30, 2019, the Company closed on the following acquisitions (see Note 17):~~

(in thousands, except number of properties)

Number of

Real Estate

Date

Property Type

Properties

Acquisition Price

October 31, 2019

Retail/Healthcare

3

$
12,922

November 7, 2019

Retail

1

3,142

4

$
16,064

The Company has not completed the allocation of the acquisition date fair values for the properties acquired subsequent to September 30, 2019; however, it expects the acquisitions to qualify as asset acquisitions and that the purchase price of these properties will primarily be allocated to land, land improvements, building and acquired lease intangibles.

5.6. Sale of Real Estate

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

	For the three months ended September 30,						For the nine months ended September 30,						For the three months ended June 30,						For the six months ended June 30,
(in thousands, except number of properties)	2019			2018			2019			2018			2020			2019			2020			2019
Number of properties disposed		16			4			25			15			3			5			13			9
Aggregate sale price	$	59,691		$	11,609		$	94,791		$	43,951		$	10,538		$	23,809		$	47,723		$	35,100
Aggregate carrying value		(43,920	)		(9,016	)		(73,365	)		(31,710	)		(8,994	)		(20,233	)		(36,758	)		(29,445	)
Additional sales expenses		(3,186	)		(568	)		(4,654	)		(2,621	)		(498	)		(789	)		(2,300	)		(1,468	)
Gain on sale of real estate	$	12,585		$	2,025		$	16,772		$	9,620		$	1,046		$	2,787		$	8,665		$	4,187

6.7. Investment in Rental Property and Lease Arrangements

The Company generally leases its investment rental property to established tenants in the ~~retail,~~industrial, healthcare, ~~manufacturing,~~restaurant, office, retail, and other industries. At ~~September~~June 30, ~~2019,~~2020, the Company had ~~642~~615 real estate properties which were leased under leases that have been classified as operating leases and 1611 that have been classified as direct financing leases. Of the 1611 leases classified as direct financing leases, ~~four~~three include land portions which are accounted for as operating leases (see Revenue Recognition within Note 2). Substantially all leases have initial terms of 10 to 20 years. The Company’s leases generally provide for limited increases in rent as a result of fixed increases, increases in the ~~Consumer Price Index,~~CPI, or increases in the tenant’s sales volume. Generally, tenants are also required to pay all property taxes and assessments, substantially maintain the interior and exterior of the building, and maintain property and liability insurance coverage. The leases also typically provide for one or more multiple year renewal options, at the election of the tenant, and are subject to generally the same terms and conditions as the initial lease. ~~None of the Company’s leases contain purchase options.~~

The Company’s leases do not include residual value guarantees. To protect the residual value of its assets under lease, the Company requires tenants to maintain certain levels of property insurance, and in some cases will purchase supplemental policies directly. Management physically inspects each property on a regular basis, to ensure the tenant is maintaining the property so that it will be in a condition at the end of the lease term that is suitable for the Company to lease to a new tenant without the need for significant additional investment. For assets other than land, at lease inception the Company estimates the residual value taking into consideration the original fair value of the asset, less anticipated depreciation over the lease term. In general, at lease inception the Company assumes the value ascribed to land will be fully recoverable at the end of the lease term.

Investment in Rental Property – Accounted for Using the Operating Method

Rental property subject to non-cancelable operating leases with tenants ~~are~~was as follows:

(in thousands)	September 30, 2019			December 31, 2018			June 30, 2020				December 31, 2019
Land	$	551,903		$	411,043		$	545,984			$	548,911
Land improvements		279,629			239,701			276,542				275,470
Buildings and improvements		2,871,761			2,186,499			2,825,327				2,850,571
Equipment		11,492			11,492			11,873		��		11,492
		3,714,785			2,848,735			3,659,726				3,686,444
Less accumulated depreciation		(255,159	)		(206,989	)		(312,934	)			(271,044	)
	$	3,459,626		$	2,641,746		$	3,346,792			$	3,415,400

Depreciation expense on investment in rental property was as follows:

For the three months ended

September 30,

For the nine months ended

September 30,

For the three months ended

June 30,

For the six months ended

June 30,

(in thousands)

2019

2018

2019

2018

2020

2019

2020

2019

Depreciation

21,843

17,196

60,128

48,345

23,560

19,532

47,075

38,285

Estimated lease payments to be received under non-cancelable operating leases with tenants at ~~September~~June 30, ~~2019~~2020 are as follows:

(in thousands)
Remainder of 2019	$	72,718
2020		294,220
Remainder of 2020			$	142,216
2021		298,899		289,046
2022		301,996		291,422
2023		304,828		294,357
2024				290,202
Thereafter		2,562,223		2,229,760
	$	3,834,884	$	3,537,003

Since lease renewal periods are exercisable at the option of the tenant, the above amounts only include future lease payments due during the initial lease terms. In addition, such amounts exclude any potential variable rent increases that are based on changes in the ~~Consumer Price Index~~CPI or future variable rents which may be received under the leases based on a percentage of the tenant’s gross sales.

Investment in Rental Property – Direct Financing Leases

The Company’s net investment in direct financing leases iswas comprised of the following:

(in thousands)	September 30, 2019			December 31, 2018			June 30, 2020			December 31, 2019
Undiscounted estimated lease payments to be received	$	73,775		$	76,829		$	49,524		$	72,753
Estimated unguaranteed residual values		20,358			20,358			16,049			20,358
Unearned income		(52,213	)		(55,187	)		(34,424	)		(51,221	)
Reserve for credit losses								(196	)		—
Net investment in direct financing leases	$	41,920		$	42,000		$	30,953		$	41,890

Undiscounted estimated lease payments to be received under non-cancelable direct financing leases with tenants at ~~September~~June 30, ~~2019~~2020 are as follows:

(in thousands)
Remainder of 2019	$	1,022
2020		4,194
Remainder of 2020			$	1,622
2021		4,283		3,304
2022		4,369		3,368
2023		4,456		3,433
2024				3,493
Thereafter		55,451		34,304
	$	73,775	$	49,524

The above rental receipts do not include future lease payments for renewal periods, potential variable ~~Consumer Price Index~~CPI rent increases, or variable percentage rent payments that may become due in future periods.

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

	For the three months ended		For the nine months ended			For the three months ended June 30,					For the six months ended June 30,
(in thousands)	September 30, 2019		September 30, 2019			2020			2019		2020			2019
Contractual rental amounts billed for operating leases	$	65,579	$	184,292		$	67,342		$	60,294	$	140,170		$	118,713
Adjustment to recognize contractual operating lease billings on a straight-line basis		5,575		16,015			8,276			5,269		9,941			10,440
Variable rental amounts earned							51			—		74			—
Adjustment to revenue recognized for uncollectible rental amounts billed		—		(440	)		(1,190	)		—		(2,223	)		(440	)
Total operating lease rental revenues		71,154		199,867			74,479			65,563		147,962			128,713
Earned income from direct financing leases		1,005		3,014			855			1,004		1,842			2,009
Operating expenses billed to tenants		3,811		10,572			4,335			2,486		8,067			6,761
Other income from real estate transactions		431		431			702			—		731			—
Total lease revenues	$	76,401	$	213,884
Total Lease revenues, net						$	80,371		$	69,053	$	158,602		$	137,483

7.8. Intangible Assets and Liabilities

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

(in thousands)	September 30, 2019			December 31, 2018			June 30, 2020			December 31, 2019
Lease intangibles:
Acquired above-market leases	$	64,931		$	64,164		$	55,242		$	62,136
Less accumulated amortization		(17,275	)		(14,740	)		(17,981	)		(17,433	)
Acquired above-market leases, net		47,656			49,424			37,261			44,703
Acquired in-place leases		351,720			277,659			334,590			349,645
Less accumulated amortization		(56,898	)		(40,825	)		(73,110	)		(62,454	)
Acquired in-place leases, net		294,822			236,834			261,480			287,191
Total intangible lease assets, net	$	342,478		$	286,258		$	298,741		$	331,894
Acquired below-market leases	$	114,316		$	101,602		$	107,645		$	113,862
Less accumulated amortization		(19,813	)		(15,655	)		(24,488	)		(21,640	)
Intangible lease liabilities, net	$	94,503		$	85,947		$	83,157		$	92,222
Leasing fees	$	17,316		$	17,274		$	15,796		$	17,013
Less accumulated amortization		(4,065	)		(3,576	)		(4,428	)		(4,166	)
Leasing fees, net	$	13,251		$	13,698		$	11,368		$	12,847

Amortization ~~for~~of intangible lease assets and liabilities iswas as follows:

(in thousands)		For the three months ended September 30,				For the nine months ended September 30,						For the three months ended June 30,					For the six months ended June 30,
Intangible	Financial Statement Presentation	2019		2018		2019		2018			Financial Statement Presentation	2020			2019		2020		2019
Acquired in-place leases and leasing fees	Depreciation and amortization	$	6,549	$	4,673	$	17,861	$	12,958		Depreciation and amortization	$	16,339		$	5,755	$	24,034	$	11,312
Above-market and below-market leases	Increase (decrease) to lease revenues		875		255		2,335		(212	)	Lease revenues, net		(1,016	)		720		124		1,460

Estimated future amortization of intangible assets and liabilities at ~~September~~June 30, ~~2019~~2020 is as follows:

(in thousands)
Remainder of 2019	$	6,113
2020		24,267
Remainder of 2020			$	11,480
2021		23,856		22,648
2022		23,241		22,100
2023		22,862		21,773
2024				21,007
Thereafter		160,887		127,944
	$	261,226	$	226,952

8.9. Unsecured Credit Agreements

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

	Outstanding Balance								Outstanding Balance
(in thousands, except interest rates)	September 30, 2019			December 31, 2018			Interest Rate^(d)	Maturity Date	June 30, 2020			December 31, 2019			Interest Rate^(c)	Maturity Date
2019 Unsecured Term Loan^(a)	$	—		$	300,000		one-month LIBOR + 1.40%	Feb. 2020^(g)
2020 Unsecured Term Loan^(a)		300,000			—		one-month LIBOR + 1.25%	Aug. 2020^(h)	$	240,000		$	300,000		one-month LIBOR + 1.25%	Feb. 2021^(d)
Unsecured Revolving Credit and Term Loan Agreement^(a)
Revolver^(b)		303,300			141,100		one-month LIBOR + 1.20%^(e)	Jan. 2022
Revolving Credit Facility										248,300			197,300		one-month LIBOR + 1.20%	Jan. 2022
2023 Unsecured Term Loan		265,000			265,000		one-month LIBOR + 1.35%	Jan. 2023		265,000			265,000		one-month LIBOR + 1.35%	Jan. 2023
2024 Unsecured Term Loan		190,000			190,000		one-month LIBOR + 1.25%^(f)	Jun. 2024		190,000			190,000		one-month LIBOR + 1.25%	Jun. 2024
		758,300			596,100					703,300			652,300
2022 Unsecured Term Loan^(a)										60,000			—		one-month LIBOR + 1.25%	Feb. 2022
2026 Unsecured Term Loan^(a)		450,000			—		one-month LIBOR + 1.85%	Feb. 2026		450,000			450,000		one-month LIBOR + 1.85%	Feb. 2026
Senior Notes^(a)
Series A		150,000			150,000		4.84%	Apr. 2027		150,000			150,000		4.84%	Apr. 2027
Series B		225,000			225,000		5.09%	Jul. 2028		225,000			225,000		5.09%	Jul. 2028
Series C		100,000			100,000		5.19%	Jul. 2030		100,000			100,000		5.19%	Jul. 2030
		475,000			475,000					475,000			475,000
Total		1,983,300			1,371,100					1,928,300			1,877,300
Debt issuance costs, net^(c)(b)		(8,489	)		(4,227	)				(6,908	)		(7,919	)
	$	1,974,811		$	1,366,873				$	1,921,392		$	1,869,381

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

^(b)	At December 31, 2018, the Company had an outstanding balance of $15,000 on the swingline loan feature of the Revolver, due within five business days. On January 2, 2019, the balance became a part of the Revolver and matures in January 2022.

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

^(d)(c)

At ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, one-month LIBOR was ~~2.09%~~0.16% and ~~2.35%~~1.76%, respectively.

^(e)	~~At December 31, 2018, the swingline loan balance of $15,000 bore interest at 5.45% and the remaining Revolver balance of $126,100 bore interest at one-month LIBOR plus 1.20%.~~

^(f)	On July 1, 2019, the Company amended the 2024 Unsecured Term Loan agreement to reduce the variable rate margin from a range of 1.50% to 2.45% to a range of 0.85% to 1.65%. Prior to the amendment, at December 31, 2018, the applicable margin on the 2024 Unsecured Term Loan was 1.90%.

^(g)	In January 2019 the Company exercised the first of two extension options, extending the maturity date of the loan from February 2019 to February 2020. The loan was subsequently repaid in full on February 27, 2019 in connection with entering into the 2026 Unsecured Term Loan.

^(h)(d)

The 2020 Unsecured Term Loan was originally due in August 2020, and allows two six-month extensions, at the Company’s option, subject to the Company being in compliance with the debt covenants and customary representations and warranties, and payment of a fee equal to 0.05% of the outstanding principal balance at the time of extension. On May 5, 2020, the Company exercised the first of these options, effective on August 2, 2020, extending the maturity date of the 2020 Unsecured Term Loan to February 2, 2021.

On February ~~27, 2019,~~7, 2020, the Company entered into a ~~$450,000 seven-year unsecured~~$60,000 term loan agreement (the “2026 Unsecured Term Loan”) with Capital One, National Association as administrative agent. The 2026 Unsecured Term Loan provides an accordion feature for up to a total of $550,000 borrowing capacity. The 2026 Unsecured Term Loan has an initial maturity date of February 27, 2026. Borrowings under the 2026 Unsecured Term Loan are subject to interest only payments at variable rates equal to LIBOR plus a margin between 1.45% and 2.40% per annum basedmaturing on the Operating Company’s credit rating. Based on the Operating Company’s current credit rating of Baa3, the applicable margin under the 2026 Unsecured Term Loan is 1.85%. The 2026 Unsecured Term Loan is subject to a fee of 0.25% per annum on the amount of the commitment, reduced by the amount of term loans outstanding. At closing, $300,000 of the commitment was funded and used to repay the 2019 Unsecured Term Loan in full. The remaining $150,000 commitment was drawn on August 27, 2019 and used to fund acquisitions.

On February 28, 2019, the Company amended the Unsecured Revolving Credit and Term Loan Agreement to increase the amount available under the Revolver from $425,000 to $600,000. This increased the total available borrowings under the Unsecured Revolving Credit and Term Loan Agreement to $1,055,000. All other terms and conditions of the Unsecured Revolving Credit and Term Loan Agreement remain the same as those in effect prior to this amendment.

On July 1, 2019, the Company amended the Unsecured Revolving Credit and Term Loan Agreement. Prior to the amendment, the borrowings under the 2024 Unsecured Term Loan were subject to 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% per annum with the applicable margin being 1.90% at December 31, 2018. The amendment reduced the margin to a range between 0.85% and 1.65% per annum and based on the Operating Company’s current credit rating of Baa3, the applicable margin is 1.25% beginning on July 1, 2019. All other terms and conditions of the Unsecured Revolving Credit and Term Loan Agreement remained materially the same as those in effect prior to this amendment.

~~On August 2, 2019, the Company entered into a $300,000 term loan agreement~~2022 (the ~~“2020~~“2022 Unsecured Term Loan”) with JP Morgan Chase, ~~Bank,~~ N.A. as administrative agent. The ~~2020~~2022 Unsecured Term Loan was ~~subject to a fee of 0.25% per annum on the amount of the commitment, reduced by the amount of term loans outstanding. The entire amount of $300,000 was~~fully funded ~~on August 28, 2019~~at closing and used to ~~fund acquisitions.~~repay a portion of the debt assumed by the Company as part of the Internalization. Borrowings under the ~~2020~~2022 Unsecured Term Loan are subject to interest only payments at variable rates equal to LIBOR plus a margin based onupon the ~~Operating~~ Company’s credit rating, ranging between 0.85% and 1.65% per annum. Based on the ~~Operating~~ Company’s current credit rating ~~of Baa3,~~ the applicable margin iswas 1.25%. as of June 30, 2020.

At ~~September~~June 30, ~~2019,~~2020, the weighted average interest rate on all outstanding borrowings was ~~3.89%.~~2.45%, exclusive of interest rate swap agreements. In addition, the ~~Revolver~~Revolving Credit Facility is subject to a facility fee of 0.25% per annum.

For the ~~three and nine~~six months ended ~~September~~June 30, 2019, the Company paid ~~$1,281 and $6,510, respectively,~~$5,229 in debt issuance costs associated with the ~~2020 Unsecured Term Loan, the~~ 2026 Unsecured Term Loan and the ~~amended~~ Unsecured Revolving Credit and Term Loan Agreement. For each separate debt instrument, on a lender by lender basis, in accordance with ASC 470-50, Debt Modifications and Extinguishment, the Company performed an assessment of whether the transaction was deemed to be new debt, a modification of existing debt, or an extinguishment of existing debt. Debt issuance costs are either deferred and amortized over the term of the associated debt or expensed as incurred. Based on this assessment, ~~$1,275 and $6,504~~$5,229 of the debt issuance costs incurred induring the ~~three and nine~~six months ended ~~September~~June 30, 2019, ~~respectively,~~ were deemed to be related to the issuance of new debt, or the modification of existing debt, and therefore have been deferred and are being amortized over the term of the associated debt. ~~The remaining $6~~Additionally, $215 of ~~the~~unamortized debt issuance costs ~~incurred in~~were expensed during the ~~three and nine~~six months ended ~~September~~June 30, 2019, ~~were deemed to be related to the extinguishment of debt and were expensed~~ and included in Cost of debt extinguishment in the accompanying Condensed Consolidated Statements of Income and Comprehensive Income. Additionally, $113 and $328 of unamortized debt issuance costs were expensed in the three and nine months ended September 30, 2019, respectively, and included in Cost of debt extinguishment in the accompanying Condensed Consolidated Statements of Income ~~and Comprehensive Income.~~(Loss).

Debt issuance costs are amortized as a component of interest expense in the accompanying Condensed Consolidated Statements of Income and Comprehensive ~~Income.~~Income (Loss). The following table summarizes debt issuance cost amortization:

For the three months ended

September 30,

For the nine months ended

September 30,

For the three months ended

June 30,

For the six months ended

June 30,

(in thousands)

2019

2018

2019

2018

2020

2019

2020

2019

Debt issuance costs amortization

611

477

1,761

1,410

821

597

1,709

1,150

9.The Company is subject to various financial and operational covenants and financial reporting requirements pursuant to its unsecured credit agreements. These covenants require the Company to maintain certain financial ratios, including leverage, fixed charge coverage, and debt service coverage, among others. As of June 30, 2020, the Company believes it was in compliance with all of its loan covenants. The Company’s continued compliance with these covenants depends on many factors and could be impacted by current or future economic conditions associated with the COVID-19 pandemic (see Note 18), and thus there are no assurances that the Company will continue to be in compliance with its covenants. Failure to comply with the covenants would result in a default which, if the Company were unable to cure or obtain a waiver from the lenders, could accelerate the repayment of the obligations. Further, in the event of default, the Company may be restricted from paying dividends to its stockholders in excess of dividends required to maintain its REIT qualification. Accordingly, an event of default could have a material and adverse impact on the Company.

10. Mortgages and Notes Payable

The Company’s mortgages and notes payable consist of the following:

		Origination	Maturity										Origination	Maturity
(in thousands, except interest rates)	(in thousands, except interest rates)	Date	Date	Interest	September 30,			December 31,				(in thousands, except interest rates)	Date	Date	Interest	June 30,			December 31,
Lender	Lender	(Month/Year)	(Month/Year)	Rate	2019			2018				Lender	(Month/Year)	(Month/Year)	Rate	2020			2019
(1)	Wilmington Trust National Association	Apr-19	Feb-28	4.92%	$	49,340		$	—		(a) (b) (c) (n)	Wilmington Trust National Association	Apr-19	Feb-28	4.92%	$	48,512		$	49,065		^{(a) (b) (c) (k)}
(2)	Wilmington Trust National Association	Jun-18	Aug-25	4.36%		20,409			20,674		(a) (b) (c) (m)	Wilmington Trust National Association	Jun-18	Aug-25	4.36%		20,134			20,318		^{(a) (b) (c) (j)}
(3)	PNC Bank	Oct-16	Nov-26	3.62%		17,980			18,260		(b) (c)	PNC Bank	Oct-16	Nov-26	3.62%		17,693			17,885		^{(b) (c)}
(4)	Sun Life	Mar-12	Oct-21	5.13%		10,990			11,288		(b) (g)	Sun Life	Mar-12	Oct-21	5.13%		10,681			10,888		^{(b) (f)}
(5)	Aegon	Apr-12	Oct-23	6.38%		7,968			8,496		(b) (h)	Aegon	Apr-12	Oct-23	6.38%		7,419			7,788		^{(b) (g)}
(6)	M&T Bank	Oct-17	Aug-21	one - month LIBOR+3%		4,949			5,051		(b) (d) (i) (j)	M&T Bank	Oct-17	Aug-21	one - month LIBOR+3%		4,842			4,913		^{(b) (d) (h) (i)}
(7)	Note holders	Dec-08	Dec-23	6.25%		750			750		(d)	Note holders	Dec-08	Dec-23	6.25%		591			750		^(d)
(8)	Standard Insurance Co.	Jul-10	Aug-30	6.75%		549			563		(b) (c) (d) (f)	Standard Insurance Co.	Jul-10	Aug-30	6.75%		—			544		^{(b) (c) (d) (e)}
~~(9)~~	Symetra Financial	Nov-17	Oct-26	3.65%		—			6,467		(a) (b) (k) (l)						109,872			112,151
(10)	Columbian Mutual Life Insurance Company	Aug-10	Sep-25	7.00%		—			1,459		(b) (c) (d)
(11)	Legg Mason Mortgage Capital Corporation	Aug-10	Aug-22	7.06%		—			4,692		(b) (e)
(12)	Standard Insurance Co.	Apr-09	May-34	6.88%		—			1,751		(b) (c)
						112,935			79,451			Debt issuance costs, net					(360	)		(358	)
	Debt issuance costs, net					(373	)		(499	)						$	109,512		$	111,793
					$	112,562		$	78,952

^(a)	Non-recourse debt includes the indemnification/guaranty of the Corporation and/or ~~Operating Company~~OP pertaining to fraud, environmental claims, insolvency and other matters.

^(b)	Debt secured by related rental property and lease rents.

^(c)	Debt secured by guaranty of the ~~Operating Company.~~OP.

^(d)	Debt secured by guaranty of the Corporation.

^(e)	~~Debt is guaranteed by a third party.~~

^(f)

The interest rate represents the initial interest ~~rate on the respective note.~~rate. The interest rate ~~will be~~could have been adjusted at Standard Insurance’s discretion (based on prevailing rates) at 119 months from the first payment date, and the monthly installments will be adjusted accordingly. At the time Standard Insurance may adjust the interest rate for the note payable, the Company has the right to prepay the note without penalty.date.

^(g)(f)

Mortgage was assumed in March 2012 as part of an UPREIT transaction. The debt was recorded at fair value at the time of the assumption.

^(h)(g)

Mortgage was assumed in April 2012 as part of the acquisition of the related property. The debt was recorded at fair value at the time of the assumption.

^(i)(h)

The Company entered into an interest rate swap agreement in connection with the mortgage note, as further described in Note ~~10.~~11.

^(j)(i)

Mortgage was assumed in October 2017 as part of an UPREIT transaction. The debt was recorded at fair value at the time of the assumption.

^(k)	~~Mortgage was assumed in November 2017 as part of the acquisition of the related property. The debt was recorded at fair value at the time of the assumption.~~

^(l)	~~The interest rate will be adjusted to the holder’s quoted five-year commercial mortgage rate for similar size and quality.~~

^(m)(j)

Mortgage was assumed in June 2018 as part of the acquisition of the related property. The debt was recorded at fair value at the time of assumption.

^(n)(k)

Mortgage was assumed in April 2019 as part of the acquisition of the related property. The debt was recorded at fair value at the time of assumption.

At ~~September~~June 30, ~~2019,~~2020, investment in rental property of ~~$179,769 is~~$175,714 was pledged as collateral against the Company’s mortgages and notes payable.

The following table summarizes the mortgages extinguished by the Company:

(in thousands, except number of mortgages)

For the nine months ended

September 30, 2019

For the year ended

December 31, 2018

For the six months ended

June 30, 2020

For the year ended

December 31, 2019

Number of mortgages

Outstanding balance of mortgages

13,905

6,666

541

13,905

The following table summarizes the cost of mortgage extinguishment:

For the three months ended

September 30,

For the nine months ended

September 30,

For the three months ended

June 30,

For the six months ended

June 30,

(in thousands)

2019

2018

2019

2018

2020

2019

2020

2019

Cost of mortgage extinguishment

336

842

101

—

506

Estimated future principal payments to be made under the above mortgage and note payable agreements, and the Company’s unsecured credit agreements (see Note 8)9) at ~~September~~June 30, ~~2019~~2020 are as follows:

(in thousands)
Remainder of 2019	$	784
2020		303,210
Remainder of 2020			$	1,614
2021		18,028		258,006
2022		306,230		311,207
2023		273,356		273,173
2024				192,260
Thereafter		1,194,627		1,001,912
	$	2,096,235	$	2,038,172

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

~~10.~~

11. Interest Rate Swaps

Interest rate swaps were entered into with certain financial institutions in order to mitigate the impact of interest rate variability over the term of the related debt agreements. The interest rate swaps are considered cash flow hedges. In order to reduce counterparty concentration risk, the Company has a diversification policy for institutions that serve as swap counterparties. Under these agreements, the Company receives monthly payments from the counterparties on these interest rate swaps equal to the related variable interest rates multiplied by the outstanding notional amounts. Certain interest rate swaps amortize on a monthly basis. In turn, the Company pays the counterparties each month an amount equal to a fixed rate multiplied by the related outstanding notional amounts. The intended net impact of these transactions is that the Company pays a fixed interest rate on its variable-rate borrowings.

The following is a summary of the Company’s outstanding interest rate swap agreements:

(in thousands, except interest rates)	(in thousands, except interest rates)								Fair Value							(in thousands, except interest rates)								Fair Value
Counterparty		Maturity Date	Fixed Rate			Variable Rate Index	Notional Amount		September 30, 2019			December 31, 2018					Maturity Date	Fixed Rate			Variable Rate Index	Notional Amount		June 30, 2020			December 31, 2019
Bank of America, N.A.		November 2023		2.80	%	one-month LIBOR	$	25,000	$	(1,389	)	$	(411	)			November 2023		2.80	%	one-month LIBOR	$	25,000	$	(2,194	)	$	(1,136	)
Bank of Montreal		July 2024		1.16	%	one-month LIBOR		40,000		421			2,702				July 2024		1.16	%	one-month LIBOR		40,000		(1,635	)		740
Bank of Montreal		January 2025		1.91	%	one-month LIBOR		25,000		(694	)		769				January 2025		1.91	%	one-month LIBOR		25,000		(1,988	)		(402	)
Bank of Montreal		July 2025		2.32	%	one-month LIBOR		25,000		(1,333	)		222				July 2025		2.32	%	one-month LIBOR		25,000		(2,688	)		(970	)
Bank of Montreal		January 2026		1.92	%	one-month LIBOR		25,000		(833	)		915				January 2026		1.92	%	one-month LIBOR		25,000		(2,346	)		(448	)
Bank of Montreal		January 2026		2.05	%	one-month LIBOR		40,000		(1,643	)		1,130				January 2026		2.05	%	one-month LIBOR		40,000		(4,040	)		(1,014	)
Bank of Montreal		December 2026		2.33	%	one-month LIBOR		10,000		(662	)		132				December 2026		2.33	%	one-month LIBOR		10,000		(1,328	)		(460	)
Bank of Montreal		December 2026		1.99	%	one-month LIBOR		25,000		(1,058	)		—				December 2026		1.99	%	one-month LIBOR		25,000		(2,760	)		(577	)
Bank of Montreal		December 2027		2.37	%	one-month LIBOR		25,000		(1,905	)		355				December 2027		2.37	%	one-month LIBOR		25,000		(3,760	)		(1,306	)
Bank of Montreal		May 2029		2.09	%	one-month LIBOR		25,000		(1,502	)		—				May 2029		2.09	%	one-month LIBOR		25,000		(3,633	)		(799	)
Capital One, National Association		December 2021		1.05	%	one-month LIBOR		15,000		133			605				December 2021		1.05	%	one-month LIBOR		15,000		(213	)		143
Capital One, National Association		December 2024		1.58	%	one-month LIBOR		15,000		(165	)		727				December 2024		1.58	%	one-month LIBOR		15,000		(935	)		10
Capital One, National Association		January 2026		2.08	%	one-month LIBOR		35,000		(1,515	)		930				January 2026		2.08	%	one-month LIBOR		35,000		(3,549	)		(911	)
Capital One, National Association		April 2026		2.68	%	one-month LIBOR		15,000		(1,243	)		(189	)			April 2026		2.68	%	one-month LIBOR		15,000		(2,102	)		(944	)
Capital One, National Association		July 2026		1.32	%	one-month LIBOR		35,000		118			2,877				July 2026		1.32	%	one-month LIBOR		35,000		(2,182	)		720
Capital One, National Association		December 2027		2.37	%	one-month LIBOR		25,000		(1,932	)		345				December 2027		2.37	%	one-month LIBOR		25,000		(3,738	)		(1,278	)
M&T Bank		August 2021		1.02	%	one-month LIBOR		4,948		42			177		^{(a), (b)}		August 2021		1.02	%	one-month LIBOR		4,841		(46	)		41		^{(a), (b)}
M&T Bank		September 2022		2.83	%	one-month LIBOR		25,000		(1,031	)		(362	)			September 2022		2.83	%	one-month LIBOR		25,000		(1,490	)		(862	)
M&T Bank		November 2023		2.65	%	one-month LIBOR		25,000		(1,284	)		(254	)			November 2023		2.65	%	one-month LIBOR		25,000		(2,125	)		(1,038	)
Regions Bank		May 2020		2.12	%	one-month LIBOR		50,000		(104	)		271				May 2020		2.12	%	one-month LIBOR		50,000		—			(104	)
Regions Bank		December 2023		1.18	%	one-month LIBOR		25,000		199			1,484				December 2023		1.18	%	one-month LIBOR		25,000		(962	)		376
Regions Bank		May 2029		2.11	%	one-month LIBOR		25,000		(1,562	)		—				May 2029		2.11	%	one-month LIBOR		25,000		(3,753	)		(827	)
Regions Bank		June 2029		2.03	%	one-month LIBOR		25,000		(1,383	)		—				June 2029		2.03	%	one-month LIBOR		25,000		(3,579	)		(651	)
SunTrust Bank		April 2024		1.99	%	one-month LIBOR		25,000		(745	)		554
SunTrust Bank		April 2025		2.20	%	one-month LIBOR		25,000		(1,181	)		382
SunTrust Bank		July 2025		1.99	%	one-month LIBOR		25,000		(934	)		728
SunTrust Bank		December 2025		2.30	%	one-month LIBOR		25,000		(1,474	)		299
SunTrust Bank		January 2026		1.93	%	one-month LIBOR		25,000		(915	)		903
Truist Financial Corporation																	April 2024		1.99	%	one-month LIBOR		25,000		(1,749	)		(451	)
Truist Financial Corporation																	April 2025		2.20	%	one-month LIBOR		25,000		(2,403	)		(781	)
Truist Financial Corporation																	July 2025		1.99	%	one-month LIBOR		25,000		(2,244	)		(524	)
Truist Financial Corporation																	December 2025		2.30	%	one-month LIBOR		25,000		(2,848	)		(993	)
Truist Financial Corporation																	January 2026		1.93	%	one-month LIBOR		25,000		(2,339	)		(458	)
U.S. Bank National Association		June 2029		2.03	%	one-month LIBOR		25,000		(1,395	)		—				June 2029		2.03	%	one-month LIBOR		25,000		(3,553	)		(681	)
U.S. Bank National Association		August 2029		1.35	%	one-month LIBOR		25,000		207			—				August 2029		1.35	%	one-month LIBOR		25,000		(2,021	)		881
Wells Fargo Bank, N.A.		February 2021		2.39	%	one-month LIBOR		35,000		(385	)		59				February 2021		2.39	%	one-month LIBOR		35,000		(466	)		(302	)
Wells Fargo Bank, N.A.		October 2024		2.72	%	one-month LIBOR		15,000		(994	)		(222	)			October 2024		2.72	%	one-month LIBOR		15,000		(1,642	)		(795	)
Wells Fargo Bank, N.A.		April 2027		2.72	%	one-month LIBOR		25,000		(2,427	)		(382	)			April 2027		2.72	%	one-month LIBOR		25,000		(4,075	)		(1,845	)
Wells Fargo Bank, N.A.		January 2028		2.37	%	one-month LIBOR		75,000		(5,801	)		1,067				January 2028		2.37	%	one-month LIBOR		75,000		(11,292	)		(3,914	)
									$	(36,369	)	$	15,813											$	(85,678	)	$	(21,560	)

^(a)	Notional amount at December 31, ~~2018~~2019 was ~~$5,051.~~$4,912.

^(b)	Interest rate swap was assumed in October 2017 as part of an UPREIT transaction.

The total amounts recognized, and the location in the accompanying Condensed Consolidated Statements of Income and Comprehensive Income (Loss), from converting from variable rates to fixed rates under these agreements ~~are~~were as follows:

				Reclassification from				Total Interest Expense					Reclassification from				Total Interest Expense
	Amount of (Loss) Gain			Accumulated Other				Presented in the		Amount of Loss			Accumulated Other				Presented in the
	Recognized in			Comprehensive (Loss) Income				Consolidated Statements of		Recognized in			Comprehensive Loss				Consolidated Statements of
(in thousands)	Accumulated Other				Amount of			Income and Comprehensive		Accumulated Other				Amount of			Income and Comprehensive
For the three months ended September 30,	Comprehensive (Loss) Income			Location	Gain (Loss)			Income
For the three months ended June 30,										Comprehensive Loss			Location	(Loss) Gain			Income (Loss)
2020										$	(6,056	)	Interest expense	$	(3,416	)	$	19,513
2019	$	(16,380	)	Interest expense	$	387		$	18,465		(23,178	)	Interest expense		778			16,732
2018		6,299		Interest expense		(20	)		14,484

				Reclassification from				Total Interest Expense					Reclassification from				Total Interest Expense
	Amount of (Loss) Gain			Accumulated Other				Presented in the		Amount of Loss			Accumulated Other				Presented in the
	Recognized in			Comprehensive (Loss) Income				Consolidated Statements of		Recognized in			Comprehensive Loss				Consolidated Statements of
(in thousands)	Accumulated Other				Amount of			Income and Comprehensive		Accumulated Other				Amount of			Income and Comprehensive
For the nine months ended September 30,	Comprehensive (Loss) Income			Location	Gain (Loss)			Income
For the six months ended June 30,										Comprehensive Loss			Location	(Loss) Gain			Income (Loss)
2020										$	(64,118	)	Interest expense	$	(4,301	)	$	40,504
2019	$	(52,182	)	Interest expense	$	2,001		$	51,025		(35,802	)	Interest expense		1,614			32,560
2018		30,296		Interest expense		(1,287	)		38,115

Amounts related to the interest rate swaps expected to be reclassified out of Accumulated other comprehensive ~~(loss) income~~loss to Interest expense during the next twelve months are estimated to be a loss of ~~$3,688.~~$16,221. The Company is exposed to credit risk in the event of non-performance by the counterparties of the swaps. The Company minimizes the risk exposure by limiting counterparties to major banks who meet established credit and capital guidelines.

~~11. Non-Controlling Interests~~

Under the Company’s UPREIT structure, entities and individuals can contribute their properties in exchange for membership interests in the Operating Company. Properties contributed as part of UPREIT transactions were valued at $15,797 during the nine months ended September 30, 2018, which represents the estimated fair value of the properties contributed, less any assumed debt. There were no UPREIT transactions during the three and nine months ended September 30, 2019.

12. Credit Risk Concentrations

The Company maintained bank balances that, at times, exceeded the federally insured limit during the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020. The Company has not experienced losses relating to these deposits and management does not believe that the Company is exposed to any significant credit risk with respect to these amounts.

~~The~~Prior to the Internalization on February 7, 2020, the Company’s rental property iswas managed by ~~the Manager~~BRE and the Asset Manager as described in Note 3. Management fees paid to ~~the Manager~~BRE and Asset Manager ~~represent 17%~~represented 0% and ~~20%~~4% of total operating expenses for the three and six months ended ~~September~~June 30, ~~2019 and 2018,~~2020, respectively, ~~and 18%~~ and 19% of total operating expenses for the ~~nine~~three and six months ended ~~September~~June 30, 2019, ~~and 2018,~~ respectively. These amounts do not include acquisition fees paid to the Asset Manager that were capitalized (see Note 3). The Company has mortgages and notes payable with three institutions that ~~comprise~~comprised 62%, 16%, and 10% of total mortgages and notes payable at ~~September~~June 30, ~~2019. The Company has mortgages~~2020 and ~~notes payable with four institutions that comprise 26%, 23%, 14%, and 11% of total mortgages and notes payable at~~ December 31, ~~2018.~~2019. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, the Company had no individual tenants or common franchises that accounted for more than 10% of total revenues.

13. Equity

Share Redemption Program

The Company’s Share Redemption Program was terminated effective February 10, 2020, and as a result there were no redemptions during the six months ended June 30, 2020. The following table summarizes redemptions under the Company’s Share Redemption Program:

	For the three months ended September 30,				For the nine months ended September 30,
(in thousands, except number of redemptions)	2019		2018		2019		2018		For the three months ended June 30, 2019		For the six months ended June 30, 2019
Number of redemptions requested	20		11		49		33		16		29
Number of shares	88		32		147		106		38		59
Aggregate redemption price	$	7,361	$	2,675	$	12,374	$	8,564	$	3,210	$	5,013

Distribution Reinvestment Plan

The Corporation ~~has~~had adopted a Distribution Reinvestment Plan (“DRIP”), pursuant to which the Corporation’s stockholders and holders of ~~membership units in the Operating Company~~OP Units (other than the Corporation), ~~may~~could elect to have cash distributions reinvested in additional shares of the Corporation’s common stock. ~~Cash distributions will be reinvested in additional shares of common stock pursuant to the~~The DRIP ~~at a per share price equal to 98% of the Determined Share Value as of the applicable distribution date. The Corporation may amend the DRIP at any time upon written notice to each participant at least~~was terminated effective February 10, ~~days prior to the effective date of the amendment. The Corporation may terminate the DRIP upon written notice to each participant at least~~2020. At June 30, ~~days prior to the effective date of the termination. At September 30, 2019~~2020 and December 31, ~~2018,~~2019, a total of ~~2,797~~3,075 and ~~2,233~~3,005 shares of common stock, respectively, have been issued under the DRIP.

14. Earnings per Share

The following table summarizes the components used in the calculation of basic and diluted earnings per share (“EPS”):

	For the three months ended September 30,				For the nine months ended September 30,				For the three months ended June 30,				For the six months ended June 30,
(in thousands, except per share)	2019		2018		2019		2018		2020		2019		2020		2019
Basic earnings:
Net earnings attributable to Broadstone Net Lease, Inc.	$	23,388	$	21,267	$	53,460	$	55,813	$	15,353	$	16,134	$	26,169	$	30,072
Diluted earnings:
Net earnings attributable to Broadstone Net Lease, Inc.	$	23,388	$	21,267	$	53,460	$	55,813	$	15,353	$	16,134	$	26,169	$	30,072
Net earnings attributable to non-controlling interests		1,650		1,797		3,942		4,631		1,745		1,208		2,777		2,292
	$	25,038	$	23,064	$	57,402	$	60,444	$	17,098	$	17,342	$	28,946	$	32,364

Basic and diluted weighted average shares outstanding:
Weighted average number of common shares outstanding used in basic earnings per share		24,642		20,554		23,394		19,850		26,856		23,204		26,691		22,770
Effects of convertible membership units		1,737		1,737		1,737		1,646		3,056		1,737		2,791		1,737
Weighted average number of common shares outstanding used in diluted earnings per share		26,379		22,291		25,131		21,496		29,912		24,941		29,482		24,507
Basic and diluted net earnings per common share	$	0.95	$	1.03	$	2.28	$	2.81	$	0.57	$	0.70	$	0.98	$	1.32

In the table above, outstanding ~~membership units~~OP Units are included in the diluted earnings per share calculation. However, because such ~~membership units~~OP Units would also require that the share of the ~~Operating Company~~OP income attributable to such ~~membership units (which are currently presented as non-controlling interest)~~OP Units also be added back to net income, there is no effect on EPS.

15. Supplemental Cash Flow Disclosures

Cash paid for interest was ~~$49,828~~$38,400 and ~~$33,108~~$38,802 for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. Cash paid for ~~state~~ income ~~franchise and foreign~~ taxes was ~~$809~~$945 and ~~$307~~$422 for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively.

The following are non-cash transactions and have been excluded from the accompanying Condensed Consolidated Statements of Cash Flows:

During the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, the Corporation issued ~~550~~69 and ~~458~~358 shares, respectively, of common stock with a value of approximately ~~$46,084~~$5,733 and ~~$37,055,~~$30,008, respectively, under the terms of the DRIP (see Note 13).

During the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2020, the Company issued ~~194 membership units~~shares of common stock and OP Units, with a total value of approximately $178,535, and earnout consideration with a fair value of $40,119 as consideration for the ~~Operating Company in exchange for property contributed in UPREIT transactions valued at $15,797~~Internalization and assumed $90,484 of debt (see Note ~~11)~~4).

During the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2020, the ~~Corporation cancelled nine thousand shares of common stock with a~~Company adjusted the carrying value of ~~$748 that were pledged as collateral~~mezzanine equity non-controlling interests by ~~a tenant. The cancellation of the shares was used~~$2,513, with an offset to ~~settle $748 in outstanding receivables associated with the tenant.~~additional paid-in capital (see Note 2).

At ~~September~~June 30, 2019, ~~and 2018,~~ dividend amounts declared and accrued but not yet paid amounted to ~~$11,932~~$11,119.

During the six months ended June 30, 2020, the Company executed lease modifications that resulted in the lease classification changing from direct financing lease to operating lease for four properties. At the modification date, the net investment in the original lease, and ~~$9,722, respectively.~~therefore the carrying value of the assets recognized, amounted to $9,055.

In connection with real estate transactions conducted during the six months ended June 30, 2019, the Company accepted tenant improvement allowances of $1,727 in exchange for a reduction to the cash paid for the associated real estate assets.

Upon adoption of ASC 326 on January 1, 2020, described in Note 2, the Company recorded a transition adjustment to record a provision for credit losses associated with its net investment in direct financing leases of $323, with an equal amount recorded as a reduction in retained earnings. The provision for credit losses is included as a component of Investment in rental property, net accounted for using the direct financing method on the Condensed Consolidated Balance Sheets.

Upon adoption of ASC 842 on January 1, 2019, ~~described in Note 2,~~ the Company recorded right-of-use assets of $1,687 and lease liabilities of $1,261 associated with ground leases where it is the lessee. The right-of-use asset was recorded net of a straight-line rent liability of $7 and ground lease intangible asset, net of $432 as of the date of adoption.

In connection with real estate transactions conducted during the nine months ended September 30, 2018, the Company settled notes receivable in the amount of $6,527 in exchange for a reduction to the cash paid for the associated real estate assets.

In connection with real estate transactions conducted during the nine months ended September 30, 2019, the Company assumed tenant improvement allowances of $2,517 in exchange for a reduction to the cash paid to acquire the associated real estate assets.

16. Commitments and Contingencies

Litigation

From time to time, the Company is a party to various litigation matters incidental to the conduct of the Company’s business. While the resolution of such matters cannot be predicted with certainty, based on currently available information, the Company does not believe that the final outcome of any of these matters will have a material effect on its consolidated financial position, results of operations, or liquidity.

Property and Acquisition Related

In connection with ownership and operation of real estate, the Company may potentially be liable for ~~cost~~costs and damages related to environmental matters. The Company is not aware of any non-compliance, liability, claim, or other environmental condition that would have a material effect on its consolidated financial position, results of operations, or liquidity.

~~As part of acquisitions closed during the nine months ended September 30, 2019, the company assumed three lease agreements that provided for a total of $2,517 in tenant improvement allowances.~~

Balances associated with tenant improvement allowances are included in Accounts payable and other liabilities on the Condensed Consolidated Balance Sheets as follows:

(in thousands)

September 30,

2019

December 31,

2018

June 30,

2020

December 31,

2019

Tenant improvement allowances

3,664

2,125

2,208

2,706

The Company is a party to three separate tax protection agreements with the contributing members of three distinct UPREIT transactions and to the Founding Owners’ Tax Protection Agreement in connection with the Internalization (see Note 3). The tax protection agreements require the Company to indemnify the beneficiaries in the event of a sale, exchange, transfer, or other disposal of the contributed property, or in the case of the Founding Owners’ Tax Protection Agreement, the entire Company, in a taxable transaction that would cause such beneficiaries to recognize a gain that is protected under the agreements, subject to certain exceptions. Based on values as of June 30, 2020, taxable sales of the applicable properties would trigger liability under the Agreements of approximately $22,300. Based on information available, the Company does not believe that the events resulting in damages as detailed above have occurred or are likely to occur in the foreseeable future.

Obligations Under Operating Leases

Subsequent to the Internalization (see Note 4), the Company leases office space for its corporate headquarters and other locations under non-cancellable operating leases with expiration dates ranging from 2020 to 2023. These leases contain provisions for fixed monthly payments, subject to rent escalations. None of the leases are subject to any sublease agreement. The lease for the corporate headquarters is with a related party (see Note 3).

The Company also leases land at certain properties under non-cancellable operating leases (“ground leases”) with initial lease terms ranging from ~~2025~~2034 to 2066. These leases contain provisions for fixed monthly payments, subject to rent escalations. One lease requires the Company to make annual rent payments calculated based upon sales generated at the property (“percentage rent”). None of the leases are subject to any sublease agreement.

The following table summarizes the total lease costs associated with ~~these leases, reported as a component of Property and~~ operating ~~expense in the accompanying Condensed Consolidated Statements of Income and Comprehensive Income:~~leases:

	For the three months ended September 30,				For the nine months ended September 30,					For the three months ended June 30,				For the six months ended June 30,
(in thousands)	2019		2018		2019		2018		Financial Statement Presentation	2020		2019		2020		2019
Operating lease costs	$	35	$	23	$	105	$	26
Office leases									General and administrative	$	155	$	—	$	207	$	—
Ground leases									Property and operating expense		34		35		67		70
Variable lease costs		11		11		34		13
Ground leases									Property and operating expense		12		11		30		23
Total lease costs	$	46	$	34	$	139	$	39		$	201	$	46	$	304	$	93

The following table summarizes payments associated with obligations under operating leases, reported as Cash flows from operating activities on the accompanying Condensed Consolidated Statements of Cash Flows:

For the three months ended
September 30,

For the nine months ended
September 30,

(in thousands)

2019

2018

2019

2018

Operating lease payments

$
27

$
20

$
127

$
23

For the three months ended

June 30,

For the six months ended

June 30,

(in thousands)

2020

2019

2020

2019

Operating lease payments

183

311

100

Estimated future lease payments required under non-cancelable operating leases at ~~September~~June 30, ~~2019,~~2020, and a reconciliation to the lease liabilities, is as follows:

(in thousands)
Remainder of 2019	$	29
2020		120
Remainder of 2020				$	355
2021		122			711
2022		124			686
2023		125			505
2024					120
Thereafter		2,540			2,411
Total undiscounted cash flows		3,060			4,788
Less imputed interest		(1,814	)		(1,864	)
Lease liabilities	$	1,246		$	2,924

The above rental payments include future minimum lease payments due during the initial lease terms. Such amounts exclude any ~~variable lease payments~~contingent amounts associated with percentage rent ~~or changes in the Consumer Price Index~~ that may become due in future periods.

17. Subsequent Events

Through November 12, 2019, the Company has raised $5,789 equivalent to 69 shares of the Corporation’s common stock through the DRIP. Through November 12, 2019, the Company has paid $11,932 in distributions, including dividend reinvestments.

Subsequent to September 30, 2019, the Company continued to expand its operations through the acquisition of additional rental property and associated intangible assets and liabilities. The Company acquired approximately $16,064 of rental property and associated intangible assets and liabilities. Through November 12, 2019, the Company sold five properties with an aggregate carrying value of $10,922 for total proceeds of $13,731. The Company incurred additional expenses related to the sales of approximately $745, resulting in a gain on sale of real estate of approximately $2,064.

On ~~October 31, 2019,~~August 4, 2020, the Board of Directors ~~declared a~~voted to reinstate the Company’s distribution, announcing that the Company would transition to quarterly distribution payments. A quarterly distribution of ~~$0.44~~$0.54 per share onof the ~~Corporation’s~~Company’s common stock and ~~approved a distribution~~OP Unit for the third quarter of ~~$0.44 per membership unit of the Operating Company for monthly distributions through January 2020. The distributions are~~2020 will be payable on or ~~prior to the 15th day of the following month~~before October 15, 2020, to stockholders and unit holders of record onas of September 30, 2020.

On August 4, 2020, the ~~record date, which is generally the next-to-the-last business day~~Board of ~~the prior month. In addition, the IDC~~Directors determined the share value for the Corporation’s common stock to be ~~$85.00~~$82.00 per share for the period ~~from November~~August 1, ~~2019~~2020 through ~~January~~October 31, 2020.

~~Subsequent to September 30, 2019,~~ However, on January 10, 2020, the ~~Operating~~ Company ~~paid off borrowings on the Revolver in the aggregate amount~~suspended its private offering of ~~$6,000.~~

~~Internalization~~shares of its common stock until further notice.

On ~~November 11, 2019,~~August 4, 2020, the Board of Directors adopted the Broadstone Net Lease, Inc. 2020 Omnibus Equity and Incentive Plan (the “Equity and Incentive Plan”), under which equity awards may be made in respect of 2,250 shares of our common stock. On August 4, 2020, the Company ~~entered into a definitive merger agreement (the “Merger Agreement”) with the Manager and other parties providing for the internalization~~awarded 85 shares of the external management functions currently performed for the Company by the Manager (the “Internalization”). Upon consummation of the Internalization, the Company’s current management team and corporate staff, who are currently employed by the Manager, will become employed by an indirect subsidiary of the Company, and the Company will become internally managed. Subject to the satisfaction of specified closing conditions, the Internalization is scheduled to close during the first quarter of 2020. ~~The Internalization is not considered a termination event~~restricted stock under the ~~Property Management Agreement~~Equity and ~~the Asset Management Agreement (see Note 3). The Property Management Agreement and Asset Management Agreement, however,~~Incentive Plan with a grant date fair value of $6,990 which will ~~be terminated upon closing of the Internalization, but no fees will be payable under them as~~vest over a ~~result of that termination.~~ ~~The Internalization will consist of the acquisition of the Manager through a series of mergers pursuant to the Merger Agreement.~~

The consideration paid pursuant to the Merger Agreement will consist of (i) base consideration of approximately $206 million plus assumption of debt of approximately $94 million, payable upon closing and (ii) additional consideration of up to $75 million payablethree or four year period in four tranches of $10 million, $15 million, $25 million, and $25 million if certain milestones related to either (a) the dollar volume-weighted average price of a share of the Company’s common stock (“VWAP per REIT Share”), following the completion of an initial public offering of the Company’s common stock (“IPO”), or (b) the Company’s adjusted funds from operations (“AFFO”) per share, prior to the completion of an IPO, are achieved during specified periods of time following the closing of the Internalization (the

“Earnout Periods”). The consideration will consist of a combination of cash, shares of the Company’s common stock, and Operating Company membership units, at the election of the owners of the Manager.

~~The earnout tranches, applicable VWAP of a REIT Share and AFFO per share, and the applicable Earnout Periods are as follows:~~

If the Company has completed an IPO

If the Company has not completed an IPO
Earnout Tranche

VWAP of a REIT Share

Applicable Earnout Period

AFFO per Share

Applicable Earnout Period
$10 million

$90.00

The two-year period beginning on the earlier of (i) the IPO closing date or (ii) December 31, 2020.

$5.85

The two-year period consisting of the calendar years ended December 31, 2020 and December 31, 2021.
$15 million

$95.00

The two-year period beginning on the earlier of (i) the IPO closing date or (ii) December 31, 2020.

$5.95

The two-year period consisting of the calendar years ended December 31, 2020 and December 31, 2021.
$25 million

$97.50

The four-year period beginning on the date that is exactly one year after the earnout period begins for the first and second tranches above.

$6.30

The four-year period consisting of the calendar years ended December 31, 2021, December 31, 2022, December 31, 2023 and December 31, 2024.
$25 million

$100.00

The four-year period beginning on the date that is exactly one year after the earnout period begins for the first and second tranches above.

$6.70

The four-year period consisting of the calendar years ended December 31, 2021, December 31, 2022, December 31, 2023 and December 31, 2024.

Upon closing of the Internalization, the Company’s existing management team, who are currently employees of the Manager, including the Company’s current executive officers, will become employees of the Company, providing a seamless transition and clarity as to future senior leadership. Each of Christopher J. Czarnecki, Ryan M. Albano, John D. Moragne, and Sean T. Cutt are expected to terminate their employmentaccordance with the Manager and enter into employment agreements with the Company or its subsidiary to serve as the Company’s Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, and Chief Investment Officer, respectively.

The Merger Agreement contains customary representations, warranties and covenants. Each party’s obligation to consummate the transactions contemplated by the Merger Agreement is subject to customary closing conditions.

~~The Merger Agreement does not provide that the completion of an IPO is a condition to the closing of the Internalization. Under~~ the terms of the Merger Agreement, however, if the Company does not complete an IPO by December 31, 2020, then the former owners of the Manager who receive shares of the Company’s common stock and/or membership units of the Operating Company will be granted certain redemption rights as a means to provide additional liquidity in the absence of an IPO.

Prior to closing the Internalization, the Company has agreed to repurchase all of the outstanding shares of Company common stock held by the Manager in exchange for cash at a per share price equal to $85.00, the current Determined Share Value.individual award agreements.

~~Item 2.~~

18. COVID-19 Pandemic

Since its discovery in December 2019, a novel strain of coronavirus, which causes the viral disease known as COVID-19, has spread throughout most countries of the world, including the United States. The outbreak has been declared a pandemic by the World Health Organization, and the United States Secretary of Health and Human Services has declared a public health emergency in the United States. In response to the COVID-19 pandemic, many local, state and federal governments have instituted “stay at home” or “shelter in place” rules and restrictions on the types of businesses that may continue to operate, which resulted in closure of many businesses deemed to be non-essential. Many of the Company’s tenants, in particular those who operate in the retail and restaurant industries, depend on in-person interactions with customers to generate unit-level profitability, and have been negatively impacted by the pandemic, as have businesses who supply products and services to these industries. As a result, the Company received a number of requests for rent relief and ultimately granted relief to 15 tenants whose total contractual base rents represented approximately 9.7% of the Company’s annualized contractual base rent revenues as of June 30, 2020. All rent relief requests received through June 30, 2020 have been resolved.

For all but one of the 15 tenants granted relief, the Company granted relief in the form of a partial rent deferral. For the remaining tenant, the Company agreed to a partial abatement of rent over a nine-month period with the minimum required rent payable increasing during the period, in exchange for a three-year lease term extension and an upside percentage rent clause during the abatement period. Partial rent deferrals and the abatement represented 3.0% and 1.1% of total contractual base rents due for the three months ended June 30, 2020, respectively.

The partial rent deferrals ranged between two and six months of rent, with a weighted average deferral period of 3.4 months. Repayment periods range from three months to one year, with a weighted average payback period of 5.6 months beginning in July 2020.

For partial rent deferrals expected to be repaid within a short period of time where the deferral of payments made no substantive changes to the total consideration in the original lease agreement, the amount of straight-line lease revenue recognized in the financial statements was not impacted. Deferred rents due under the agreements are recorded as Tenant and other receivables, net in the Condensed Consolidated Balance Sheets. In certain circumstances, as part of the deferral agreements, the Company negotiated lease extensions or the early exercise of tenant renewal options, resulting in cash flows under the agreements being substantially in excess of the original lease terms. The Company evaluated these agreements on a lease by lease basis, and accounted for the relief under the modification framework of ASC 842, resulting in adjustments to the amount of straight-line lease revenue that will be recorded prospectively. The Company also accounted for the partial abatement under the lease modification framework of ASC 842.

As of and for the six months ended June 30, 2020, the impact of the COVID-19 pandemic on the Company’s financial condition, and results of operations has been limited to effects of the grants of rent relief discussed above. The full extent of the pandemic on the Company’s future financial conditions, results of operations, liquidity, and ability to pay distributions will ultimately depend on certain developments, including the duration and spread of the outbreak and its impact on the Company’s tenants, all of which are uncertain and cannot be predicted. For further discussion of risks associated with the COVID-19 outbreak, refer to Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Quarterly Report on Form 10-Q below.

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

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

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q ~~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, statements that represent our beliefs concerning future operations, strategies, financial results, or other developments. We caution that~~historical facts. In some cases, you can identify these forward-looking statements ~~are not guarantees. 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,” ~~“intend,~~“seeks,” ~~“anticipate,~~“approximately,” ~~“estimate,~~“projects,” ~~“would be,~~“predicts,” ~~“believe,~~“intends,” ~~or “continue”~~“plans,” “estimates,” “anticipates,” or the negative version of these words or other ~~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 from those expressed or implied in any forward-looking statements.~~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~~assumptions, our actual results, performance, and achievements could differ materially from those expressed in or by the forward-looking statements and may be affected by a variety of risks and other factors. Accordingly, there are or will be important factors that ~~we will achieve~~could cause actual outcomes or ~~realize these plans, intentions, or expectations.~~

results to differ materially from such forward-looking statements.

Factors that could cause actual results to differ materially from those expressed or implied in such forward-looking statements include, but are not limited to:

Single-tenant leases involve significant risks of tenant default and tenant vacancies;

We have limited opportunities to increase rents under our ~~ability~~long-term leases with tenants;

We may not be able to achieve growth through acquisitions at a rate that is comparable to our historical results, as a result of competition or other factors;

We may not be able to effectively manage our growth;

The departure of any of our key personnel with long-standing business relationships could materially and adversely affect us;

We may not be able to generate cash flows sufficient to pay our dividends ~~to stockholders~~ or meet our debt service obligations;

Market conditions could adversely affect our ability to ~~achieve our investment objectives and growth plans;~~

~~the risk that the Internalization (as defined below) will not be consummated within the anticipated time period~~refinance existing indebtedness on acceptable terms or at all;

We are a holding company with no direct operations and rely on funds received from the ~~occurrence of any event or circumstance that could give rise~~OP to ~~the termination of the Merger Agreement (as defined below);~~pay liabilities;

There are risks related to ~~disruption of management’s attention from~~ our ~~ongoing business operations due~~recent Internalization, including our ability to ~~the pending Internalization;~~

~~the effect of the announcement of~~effectively manage the Internalization ~~on our operating results~~ and ~~business generally;~~

the outcome of any legal proceedings relating to the ~~Internalization;~~

~~our ability to effectively~~Internalization, and ~~efficiently manage the Internalization, if consummated;~~

the risk that we may not realize the anticipated benefits from the Internalization ~~if consummated,~~ or that such benefits are less than anticipated as a result of unexpected costs or liabilities that may arise from the Internalization;

~~our dependence upon~~Epidemics, pandemics, and other public health crises, including the ~~financial health and performance of the Manager and the Asset Manager and their ability to retain or hire key personnel;~~ongoing COVID-19 pandemic;

~~conflicts of interest arising out of our relationship with the Manager and its affiliates;~~

~~changes in~~Changing general business and economic conditions could impact us and our tenants, including those arising from natural disasters, acts of terrorism or war, as well as the recent coronavirus pandemic, fluctuating interest rates, and volatility and uncertainty in the credit markets and broader financial markets; and

~~competition in the acquisition and disposition of properties and in the leasing of our properties, which may impact our ability~~Failure to ~~acquire, dispose of, or lease properties on advantageous terms;~~

risks inherent in investing in real estate, including tenant, geographic, and industry concentrations with respect to our properties, bankruptcies or insolvencies of tenants or from tenant defaults generally, impairments in the value of our real estate assets, the illiquidity of our real estate investments, potential liability relating to environmental matters and potential damages from natural disasters, acts of terrorism, or war;

~~our access to capital and ability to borrow money in sufficient amounts and on favorable terms;~~

~~our success in our deleveraging efforts;~~

~~our continued qualification~~qualify as a ~~real estate investment trust (“REIT”)~~REIT for U.S. federal income tax ~~purposes;~~purposes would materially and adversely affect us and the value of our stock.

~~legislative or regulatory changes, including changes to the laws governing the taxation of REITs.~~

~~Any of the assumptions underlying the forward-looking statements included herein could be inaccurate, and readers~~You are cautioned not to place undue reliance on any forward-looking statements included ~~herein.~~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 ~~is filed with the Securities and Exchange Commission (the “SEC”),~~ and the risk that actual results, performance, and achievements will differ materially from the expectations expressed ~~herein~~in or referenced by this Quarterly Report on Form 10-Q will increase with the passage of time. ~~Except~~We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments, or otherwise, except as required by ~~law, we do not undertake any obligation to update or revise any forward-looking statements contained in this Form 10-Q for any reason.~~law. 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 our 2019 Annual Report on Form 10-K, ~~for the year ended December 31, 2018,~~ as filed with the SEC on February 27, 2020 and in Part II, Item 1A. “Risk Factors” of our Quarterly Report on Form 10-Q for the quarter ended March ~~14, 2019 (the “Form 10-K”~~31, 2020, as filed with the SEC on May 7, 2020.

Explanatory Note and Certain Defined Terms

Unless the context otherwise requires, the following terms and phrases are used throughout this Quarterly Report on Form 10-Q as described below:

“annualized base rent” or “ABR” means the annualized contractual cash rent due for the last month of the reporting period, excluding the impacts of the short-term rent deferrals and abatements agreed to as a result of tenant requests for rent relief related to the global coronavirus (“COVID-19”). pandemic, and adjusted to remove rent from properties sold during the month and to include a full month of contractual cash rent for properties acquired during the last month. As discussed below, as a result of the COVID-19 pandemic, in 2020 we received requests for rent relief from several tenants and agreed to temporarily defer the receipt of rent, or in limited circumstances to abate rent, for a portion of the remaining lease terms. As a result of these requests, we agreed to partial rent relief requests for 15 tenants related to 93 properties whose total base rents represent approximately 9.7% of our June ABR. We have excluded the impact of these deferrals and abatements from the calculation of ABR because they are short term in nature relative to the length of our lease terms and relate to a discrete event, and therefore including them in the calculation would not provide an accurate measure of our relative portfolio composition.

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

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

“gross asset value” means the undepreciated book value of an asset, which represents the fair value of the asset as of the date it was acquired, less any subsequent writedowns due to impairment charges;

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

“Revolving Credit Facility” means our $600 million senior unsecured revolving credit facility, dated June 23, 2017, with Manufacturers and Traders Trust Company and the other lenders party thereto, as amended from time to time.

Overview

We ~~are currently an externally managed real estate investment trust (“REIT”) formed as a Maryland corporation in 2007 to~~ acquire, own, and ~~hold~~manage primarily single-tenant commercial real estate properties ~~located primarily~~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 ~~United States, substantially all~~industrial, healthcare, restaurant, office, and retail property types, and as of ~~which are leased~~June 30, 2020, our portfolio has grown to ~~the properties’ operators under long-term net leases. Under a “net lease,” the tenant occupying the leased~~632 properties in 41 U.S. states and one property ~~(usually as a single tenant) does so~~ in ~~much the same manner as if the tenant were the owner~~Canada, with an aggregate gross asset value of the property. There are various forms of net leases, most typically classified as triple-net or double-net. Triple-net leases typically require that the tenant pay all expenses associated with the property ~~(e.g., real estate taxes, insurance, maintenance, repairs, and capital costs). Double-net leases typically require that the tenant pay all operating expenses associated with the property (e.g., real estate taxes, insurance, and maintenance), but exclude some or all major repairs (e.g.~~, roof, structure, and parking lot). Accordingly, the owner receives the rent “net” of these expenses, rendering the cash flow associated with the lease predictable for the term of the lease. Under a net lease, the tenant generally agrees to lease the property for a significant term and agrees that it will either have no ability, or only limited ability, to terminate the lease or abate rent prior to the expiration of the term of the lease as a result of real estate driven events such as casualty, condemnation, or failure by the landlord to fulfill its obligations under the lease.approximately $4.0 billion.

We focus on investing in real estate that is operated by acreditworthy single ~~tenant~~tenants in industries characterized by positive business drivers and trends, where the ~~real estate is~~properties 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, among others. We target properties with creditworthy tenants that lookthere are 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 ~~mission critical~~strategically important locations, while ~~conserving~~allocating their debt and equity capital to fund their ~~fundamental~~core business ~~operations.~~

As of September 30, 2019, we owned a diversified portfolio of 661 individual net leased commercial properties located in 42 U.S. states and one commercial property located in British Columbia, Canada, and comprising approximately 27.5 million rentable square feet of operational space. As of September 30, 2019, all but four of our properties were subject to leases and our properties were 99.7% occupied by 187 different commercial tenants, with no single tenant accounting for moreoperations rather than ~~2.8% of our contractual rental revenue over the next 12 months (“NTM Rent”).~~

We operate under the direction of our board of directors, which is responsible for the management and control of our affairs. Our board of directors currently retains Broadstone Real Estate, LLC (the “Manager”) to provide certain property management services for our properties, and Broadstone Asset Management, LLC, a wholly owned subsidiary of the Manager (the “Asset Manager”), to manage our day-to-day affairs and implement our investment strategy, subject to our board of directors’ direction, oversight, and approval.

~~As we conduct substantially all of our operations through the Operating Company, we are structured as what is referred to as an umbrella partnership~~ real estate investment trust (“UPREIT”). The UPREIT structure allows a property owner to contribute property to the Operating Company in exchange for membership units in the Operating Company and generally defer taxation of a resulting gain until the contributor later disposes of the membership units or the property is sold in a taxable transaction. The membership units of the Operating Company held by members of the Operating Company other than us are referred to herein and in our condensed consolidated financial statements as “non-controlling interests,” “non-controlling membership units,” or “membership units,” and are convertible into shares of our common stock on a one-for-one basis, subject to certain restrictions. We allocate consolidated earnings to holders of our common stock and non-controlling membership units based on the weighted average number of shares of our common stock and non-controlling membership units outstanding during the year.

During each of the periods covered by this Form 10-Q, we closed sales of additional shares of our common stock on a monthly basis, subject to an equity cap and queue program for new and additional investments. The cap does not apply to investments made pursuant to our Distribution Reinvestment Plan (“DRIP”) or equity capital received in connection with UPREIT transactions. There is currently no established equity cap. We anticipate reinstating an equity cap once we are comfortably within the leverage range of the Company’s investment grade credit rating. As a result of a pending transaction, we determined that we would not hold an equity closing as of October 31, 2019. The next equity closing will occur on November 29, 2019.

Shares of our common stock are currently being offered in our ongoing private offering at a price equal to a Determined Share Value (as defined below) of $85.00 per share. For the nine months ended September 30, 2019, ~~we sold 3,609,696~~ shares of our common stock in our private offering, including 563,864 shares of common stock issued pursuant to our DRIP, for total proceeds of approximately $307.9 million. We intend to use substantially all of the net proceeds from our ongoing private offering, supplemented with additional borrowings, to continue to invest in additional net leased properties and for general corporate purposes. See Part II, Item 2. “Unregistered Sales of Equity Securities and Use of Proceeds” of this Form 10-Q for further information.

~~As of September 30, 2019, there were 25.5 million shares of our common stock issued and outstanding, and 1.7 million non-controlling membership units issued and outstanding.~~

~~Our principal executive offices are located at 800 Clinton Square, Rochester, New York, 14604, and our telephone number is (585) 287-6500.~~

~~Q3 2019 Highlights~~

~~For the three months ended September 30, 2019, we:~~ownership.

•-

Diversified Portfolio. As of June 30, 2020, our portfolio comprised approximately 27.4 million rentable square feet of operational space, and was highly diversified based on property type, geography, tenant, and industry, and is cross-diversified within each (e.g., property-type diversification within a geographic concentration):

~~Increased revenues to $76.4 million, representing growth~~Property Type: We are focused primarily on industrial, healthcare, restaurant, office, and retail property types based on our extensive experience in and conviction around these sectors. Within these sectors, we have meaningful

concentrations in manufacturing, distribution and warehouse, clinical, casual dining, quick service restaurant, strategic operations, corporate headquarters, food processing, flex/research and development, and cold storage.

Geographic Diversity: Our properties are located in 41 U.S. states and British Columbia, Canada, with no single geographic concentration exceeding 10.4% of ~~23.7% compared to the three months ended September 30, 2018.~~our ABR.

•o

~~Generated net income~~Tenant and Industry Diversity: Our properties are occupied by approximately 182 different commercial tenants who operate 168 different brands that are diversified across 54 differing industries, with no single tenant accounting for more than 2.5% of $25.0 million, representing an increase of $2.0 million, or 8.6%, compared to the three months ended September 30, 2018. Earnings per diluted share was $0.95 for the three months ended September 30, 2019, representing a decrease of $0.08 per diluted share, or 7.8%, compared to the three months ended September 30, 2018.our ABR.

Generated funds from operations (“FFO”) of $43.3 million, representing a decrease of $1.7 million, or 3.8%, compared to the three months ended September 30, 2018. FFO per diluted share was $1.64 for the three months ended September 30, 2019, representing a decrease of $0.38 per diluted share, or 18.8% the three months ended September 30, 2018.

Generated adjusted funds from operations (“AFFO”) of $38.8 million, representing an increase of $7.5 million, or 24.0%, compared to the three months ended September 30, 2018. AFFO per diluted share was $1.47 for the three months ended September 30, 2019, representing an increase of $0.07 per diluted share, or 5.0%, compared to the three months ended September 30, 2018.

•-

~~Closed six real estate acquisitions totaling $793.2 million, excluding capitalized acquisition costs, adding 32 new properties~~Strong In-Place Leases with ~~a weighted average initial cash capitalization rate~~Significant Remaining Lease Term. As of ~~6.4%. At the time of acquisition, the properties had a~~June 30, 2020, our portfolio was approximately 99.6% leased based on rentable square footage with an ABR weighted average remaining lease term of ~~11.5~~approximately 11.0 years, ~~and weighted average annual rent increases of 2.1%.~~ These figures include the acquisition on August 29, 2019, of a portfolio of 23 fully leased industrial (warehouse, distribution, manufacturing and cold storage) and office/flex assets (the “industrial and office portfolio”) for $735.7 million, excluding capitalized acquisition costs. The industrial and office portfolio comprises 6.9 million rentable square feet of operational space and is well diversified with 19 different tenants, and properties located in 14 U.S. states and British Columbia, Canada. The acquisition was funded through a combination of proceeds from our ongoing private offering of shares of our common stock, drawing the remaining $150 million commitment available under our 2026 Unsecured Term Loan (as defined below), $300 million from the 2020 Unsecured Term Loan (as defined below), and proceeds from our senior unsecured revolving credit facility.renewal options.

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

Extensive Tenant Financial Reporting. Approximately 88.4% of our ABR is received from tenants that are required to provide us with specified financial information on a periodic basis. An additional 6.6% of our ABR is received from tenants that are public companies, which are required to file financial statements with the SEC, although they are not required to provide us with specified financial information under the terms of our lease.

~~Sold 16~~Recent Developments — COVID-19 Pandemic

The rapidly evolving circumstances related to the COVID-19 pandemic have resulted in deep economic uncertainty and far-reaching impacts on almost every business and industry. In response to the COVID-19 pandemic, many countries and U.S. states, including the areas in which we operate, adopted certain measures to mitigate the ongoing public health crises. Such measures included “shelter in place” or “stay at home” rules, restrictions on travel, and restrictions on the types of businesses that may continue to operate in many countries and U.S. states. Although such restrictions have been or were in the process of being lifted in several locations, the recent resurgence of COVID-19 cases has led to a reinstatement or partial reinstatement of restrictions in other locations. We cannot predict whether and to what extent the restrictions will be reinstated, whether additional states and cities will implement similar restrictions or when restrictions currently in place will expire. As a result, the COVID-19 pandemic is negatively impacting almost every industry directly or indirectly, including industries in which our tenants operate. Further, the impacts of a potential worsening of global economic conditions and the continued disruptions to, and volatility in, the credit and financial markets, and consumer spending, as well as other unanticipated consequences, remain unknown.

The sections below summarize the impacts of the COVID-19 pandemic on our results of operations, liquidity and capital resources, during the three and six months ended June 30, 2020, as well as management’s view of potential impacts on our future results of operations, liquidity and capital resources. For more discussion on the risks associated with the COVID-19 outbreak, see Part II, Item 1A. “Risk Factors” of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, filed with the SEC on May 7, 2020.

Impact to Results of Operations

Our results of operations and financial condition are affected by numerous factors, many of which are beyond our control. Key factors that typically impact our results of operations and financial condition, which may be exacerbated by the COVID-19 pandemic, include rental rates and collections, property dispositions, lease renewals and occupancy, acquisition volume, net lease terms, interest expense, general and administrative expenses, tenant bankruptcies, and impairments.

Rental Rates and Collections

Our financial results depend on our ability to timely collect contractual rents due under our long-term net leases. The COVID-19 pandemic’s impact on us has primarily manifested through tenant requests for rent relief, which we started to receive in late March 2020. Although the requests ranged in scope, the most common request was for a full or partial rent deferment for three months, with repayment over a six- to twelve-month period following the reinstatement of regular rent payments. As of June 30, 2020, we had resolved all active outstanding requests for rent relief as of that time. In total, we granted partial rent relief requests to 15 tenants related to 93 properties ~~representing 1.6%~~whose total base contractual rents represent 9.7% of June ABR, compared with total requests received from 59 tenants related to 295 properties whose total base contractual rents represented 33.7% of June ABR.

We evaluated each request for rent relief as a unique situation, employing a rigorous credit and business analysis focusing on, among other things, industry circumstances, the tenant’s financial performance, liquidity position, lease structure, geographic location, and regulatory impacts on the tenant’s operations (e.g., stay-at-home orders, essential v. nonessential business designations). Based on our analyses, we granted relief on a select basis only to those tenants we determined to be most in need. In cases where we granted rent relief, we focused on negotiating the shortest possible repayment period and, when possible, lease enhancements (e.g. extensions of term). There were several tenants who requested rent relief that we believed were well positioned to continue making rent payments during the pandemic. Many of those tenants had strong balance sheets and liquidity positions, had applied for or received Paycheck Protection Program loan funding under the CARES Act, or are designated as essential businesses and can continue to operate despite

restrictions on other businesses. We declined to agree to any rent relief in those circumstances, and in all such cases the tenants continued to pay all rents due as of June 30, 2020.

The rent relief requests we granted included partial deferral of payment of rent with 14 tenants, and a partial abatement of rent with one tenant. The partial rent deferrals ranged in length between two and six months, with a weighted average deferral of 3.4 months. Amounts deferred will be repaid over periods ranging between three months to one year, with a weighted average repayment period of 5.6 months beginning in July 2020. The partial abatement represents a portion of rents due over a nine-month period, with the minimum required rent payable increasing during the abatement period. In exchange, we negotiated a three-year lease term extension and an upside percentage rent clause during the abatement period, which we expect to provide us with long-term value accretion. At June 30, 2020, we had received payment for the base amounts due for the second and third quarters of 2020 under the rent abatement agreement.

In circumstances where we agreed to a rent deferral that is to be repaid over a period of time, and where the terms of the lease and amounts paid under the lease are substantially the same, we will continue to recognize the same amount of GAAP lease revenue each period to the extent the amounts are probable of collection. The amounts we agreed to defer will impact our cash flows from operations.

Other than one tenant that had filed for bankruptcy, all but one tenant paid their rent due for the second quarter, either in full or in accordance with the terms of the agreed-upon rent relief agreements. Uncollected base rent not subject to deferment, abatement, or bankruptcy, represents less than 0.02% of base rents due for the three months ended June 30, 2020.

The following chart and tables summarize our second quarter 2020 rent collection, in total and by tenant industry and property type:

¹ Relates to post-petition rents due from one tenant who had filed for bankruptcy.

		% Base Rent Collected				% Base Rent Not Collected
Tenant Industry	% of June ABR	April	May	June	Q2	Deferred	Abated	Bankruptcy
Restaurants	15.8%	97.0%	84.0%	83.9%	88.7%	4.4%	6.9%	—
Home Furnishing Retail	3.3%	26.9%	26.9%	26.9%	26.9%	4.8%	—	68.3%
Specialty Stores	2.2%	68.3%	68.3%	68.3%	68.3%	31.7%	—	—
Industrial Machinery	1.9%	84.6%	84.6%	84.6%	84.6%	15.4%	—	—
Home Furnishings	1.8%	72.9%	72.9%	72.9%	72.9%	27.1%	—	—
Life Sciences Tools & Services	1.4%	81.8%	81.8%	81.8%	81.8%	18.2%	—	—
Movies & Entertainment ²	1.1%	100.0%	50.0%	50.0%	66.7%	33.3%	—	—
All Other	72.5%	100.0%	100.0%	100.0%	100.0%	—	—	—
Grand Total	100.0%	94.7%	92.1%	92.1%	93.0%	3.0%	1.1%	2.9%

² Industrial tenant.

		% Base Rent Collected				% Base Rent Not Collected
Property Type	% of June ABR	April	May	June	Q2	Deferred	Abated	Bankruptcy
Industrial	44.1%	96.2%	95.0%	95.0%	95.4%	4.6%	—	—
Healthcare	19.9%	98.6%	98.6%	98.6%	98.6%	1.4%	—	—
Restaurant	15.5%	97.0%	83.8%	83.7%	88.4%	4.5%	7.1%	—
Office	10.0%	100.0%	100.0%	100.0%	100.0%	—	—	—
Retail	8.8%	69.9%	69.9%	69.9%	69.9%	—	—	30.1%
Other	1.7%	100.0%	100.0%	100.0%	100.0%	—	—	—
Grand Total	100.0%	94.7%	92.1%	92.1%	93.0%	3.0%	1.1%	2.9%

Rent collections have remained strong during the third quarter to date. As of the date of this filing, we had collected 96.5% of contractual base rents due for July 2020 as well as 100% of amounts due to be repaid in July 2020 under rent deferral agreements. Despite our continued strong rent collections subsequent to the outbreak of the COVID-19 pandemic, the duration of the pandemic and its impact on our tenants’ ability to return to business after governmental restrictions are fully lifted could have a significant negative impact on our ability to continue to collect future rents.

Property Dispositions

From time to time, we strategically dispose of properties, primarily when we believe the risk profile has changed and become misaligned with our then current risk-adjusted return objectives. The resulting gains or losses on dispositions may materially impact our operating results, and the recognition of a gain or loss on the sale of real estate varies from transaction to transaction based on fluctuations in asset prices and demand in the real estate market at the time a property is listed for sale. As a result of the COVID-19 pandemic, we have seen a significant slowdown in real estate transactions. In the short term, the slowdown in market activity may inhibit our ability to dispose of properties we have identified for disposition, including those that experience significant credit deterioration as a result of the COVID-19 pandemic, and the price at which we are able to sell the properties may be negatively impacted. We were able to dispose of certain properties at the end of the first quarter of 2020 and early in the second quarter 2020 that were already under contract and substantially along in the disposition process, and used the proceeds to bolster our liquidity position. We also disposed of a property subsequent to June 30, 2020 that had been vacant as of June 30, 2020. While we successfully disposed of these properties at advantageous prices, we will continue to monitor the pandemic’s impact and continue to selectively dispose of properties when advantageous to do so.

Lease Renewals and Occupancy

As of June 30, 2020, the ABR weighted average remaining term of our portfolio ~~value~~was approximately 11.0 years, excluding renewal options, and approximately 8.4% of our leases (based on ABR) will expire prior to January 1, 2025. The stability of the rental revenue generated by our properties depends principally on our tenants’ ability to pay rent and our ability to collect rents, renew expiring leases or re-lease space upon the expiration or other termination of leases, lease currently vacant properties, and maintain or increase rental rates at our leased properties. To the extent our properties become vacant, we would forego rental income while remaining responsible for the payment of property taxes and maintaining the property until it is re-leased, which could negatively impact our operating results. Our occupancy rates have remained strong during the COVID-19 pandemic, standing at 99.5% as of ~~December 31, 2018, at a weighted average capitalization rate of 6.8%, for net proceeds of $56.5 million, recognizing a gain of $12.6 million above carrying value.~~

~~Received $157.1 million in investments from new and existing stockholders, including investments made through our DRIP.~~

~~Collected greater than 99% of rents due during the quarter and,~~June 30, 2020 based on rentable square ~~footage, maintained~~footage. Additionally, when negotiating COVID-19 related rent relief agreements, we have sought to extend lease terms where possible, to preserve the continuity of tenants and long-term cash flows derived from our portfolio. We continue to monitor the impact the COVID-19 pandemic is having on lease renewals and occupancy.

Acquisition Volume

Our historical growth in revenues and earnings has been achieved through rent escalations associated with existing in-place leases, coupled with rental income generated from accretive property acquisitions. Our ability to grow revenue will depend, to a ~~99.8%~~significant degree, on our ability to identify and complete acquisitions that meet our investment criteria. Changes in capitalization rates, interest rates, or other factors may impact our acquisition opportunities in the future. Market conditions may also impact the total returns we can achieve on our investments. Our acquisition volume also depends on our ability to access third-party debt and equity financing. The COVID-19 pandemic caused a slowdown in acquisition volume, and we have not acquired any new properties in the first six months of 2020. We will continue to monitor the pandemic’s impact on capitalization rates, interest rates, and access and cost of equity and debt capital, and return to our focus on growth through acquisitions when it is prudent to do so.

Net Lease Terms

Substantially all of our leases are net leases pursuant to which our tenant generally is obligated to pay all expenses associated with the leased ~~portfolio~~property including real estate taxes, insurance, maintenance, repairs, and capital costs. A limited number of leases require us to

pay some or all of the property expenses such as the cost of environmental liabilities, roof and structure repairs, real estate taxes, insurance, or certain non-structural repairs and maintenance. Additionally, we seek to use master lease structures where it fits market practice in the particular property type, pursuant to which we seek to lease multiple properties to a single tenant on an all or none basis. Master leases strengthen our ability to preserve rental revenue and prevent costs associated with vacancies for underperforming properties. We believe the master lease structure is most prevalent and applicable to leases in our restaurant and retail property types, while less relevant to our other property types, such as healthcare and industrial. As of June 30, 2020, master leases contributed approximately 34.4% of our overall ABR (our largest master lease by ABR related to 24 properties and contributed 2.5% of our ABR, and our smallest master lease by ABR related to two properties and contributed 0.1% of our ABR), 72.9% of our restaurant property ABR (161 of our 243 restaurant properties), and 52.8% of our retail property ABR (79 of our 128 retail properties).

In instances in which we granted rent relief, we generally preserved the rights afforded to us pursuant to our leases. We continue to monitor the impact the ongoing COVID-19 pandemic, which presents certain risks of modifications to our lease terms. These lease terms include certain rights we have under master leases and the risk of tenants’ failure to meet their lease obligations, including the risk that the prolonged economic downturn forces tenants into bankruptcy. An increase in the number of leases under which we are responsible for some or all of these expenses could negatively influence our operating results.

Interest Expense

We anticipate that we will continue to incur debt to fund future acquisition activity, which will increase the amount of interest expense we incur. In addition, although we attempt to limit our total floating-rate debt exposure, changes in the interest rate environment could either increase or decrease our weighted average interest rate in the future. Any changes to our debt structure or debt financing associated with property acquisitions, could materially influence our operating results depending on the terms of any such debt. A downgrade in our credit rating could also increase the amount of interest we pay under our debt agreements.

Interest rates have continued to decline as the U.S. federal government attempts to combat the economic impacts of the COVID-19 pandemic. We benefited from this dynamic to the extent our floating rate borrowings were unhedged during the second quarter. Our floating rate borrowings bear interest at variable rates equal to LIBOR plus a margin based on our credit rating. The one-month LIBOR rate decreased from 1.76% at December 31, 2019, to 0.16% at June 30, 2020. Additionally, as of July 31, 2020, the one-month LIBOR rate was 0.15%. Restrictions in credit markets have simultaneously resulted in an increase in borrowing spreads across the debt capital markets as compared to the end of 2019, although they narrowed during the second quarter of 2020. Approximately $240 million of borrowings under our 2020 Unsecured Term Loan were set to a mature in 2020. We exercised the first of two extension options available under the loan, effective as of August 2, 2020, and extended the maturity to February 2, 2021. As market conditions evolve and we return to executing against our growth strategy, additional changes in interest rates and our borrowing spreads could influence our operating results.

General and Administrative Expenses

Our general and administrative expenses primarily consist of compensation and related costs, third party legal, accounting, and consulting costs, travel and entertainment, and general office expenses. We transitioned to a work from home policy effective on March 16, 2020, successfully migrating approximately 73 employees out of the office. As of the date of this filing, the policy remains in effect. Given our limited headcount, we have not incurred a material amount of cash outlays on information technology or infrastructure to facilitate our remote workforce, and do not believe we will incur significant costs in the future. We expect a significant decrease in travel and entertainment expenses, as social distancing guidelines and restrictions have limited corporate travel. These benefits, however, may be outweighed by incremental third party legal, accounting, and consulting costs if the impacts of the COVID-19 pandemic worsen.

Tenant Bankruptcies

Adverse economic conditions, particularly those that affect the markets in which our properties are located, or downturns in our tenants’ industries could impair our tenants’ ability to meet their lease obligations to us and our ability to renew expiring leases or re-lease space. In particular, the bankruptcy of one or more of our tenants could adversely affect our ability to collect rents from such tenant and maintain our portfolio’s occupancy. At June 30, 2020, one of our tenants, representing less than 0.5% of June ABR, was subject to bankruptcy proceedings. To mitigate the negative impact of these bankruptcy proceedings, we successfully re-leased the majority of properties leased to this tenant at the end of the second quarter. We have yet to see the long-term effects of the pandemic and the extent to which it may impact our tenants in the future. A prolonged exposure to the negative economic impacts of the pandemic may result in additional tenant bankruptcies.

Impairments

We review long-lived assets to be held and used for possible impairment when events or changes in circumstances indicate that their carrying amounts may not be recoverable. If, and when, such events or changes in circumstances are present, an impairment exists to

the extent the carrying value of the asset or asset group exceeds the sum of the undiscounted cash flows expected to result from the use of the asset or asset group and its eventual disposition. Such cash flows include expected future operating income, as adjusted for trends and prospects, as well as the effects of demand, competition, and other factors. Significant judgment is made as to if and when impairment should be taken. If our strategy, or one or more of the assumptions described above were to change in the future, an impairment may need to be recognized. Indications of a tenant’s inability to continue as a going concern, changes in our view or strategy relative to a tenant’s business or industry as a result of the COVID-19 pandemic, or changes in our long-term hold strategies, could each be indicative of an impairment triggering event. For the three and six months ended June 30, 2020, we recognized $0.5 million of impairment associated with a lease modification as the result of a tenant’s request for rent relief. We face the risk of additional impairments depending on the long-term effects of the COVID-19 pandemic and the extent to which it may impact our tenants in the future.

Impact to Liquidity and Capital Resources

Given the economic uncertainty and evolving circumstances related to the COVID-19 pandemic and the potential for further tenant requests for rent relief, we continue to evaluate all options for strengthening our liquidity position. As previously disclosed, we bolstered our liquidity profile and cash on hand position at the end of the first quarter of 2020, partially through additional borrowings on our Revolving Credit Facility as well as through the suspension of our monthly dividend. Given the strength of our rent collections, better-than-expected liquidity in the financial markets, and careful expense management, we repaid a net $105 million on our Revolving Credit Facility during the second quarter, resulting in lower leverage while maintaining financial flexibility. As of June 30, 2020, the Revolving Credit Facility had an outstanding balance of $248.3 million, and cash and cash equivalents and restricted cash totaled $9.8 million. In addition, in light of the economic uncertainty and rapidly evolving circumstances related to the COVID-19 pandemic and then-current tenant rent relief requests, to preserve cash, strengthen our liquidity position, and manage our overall leverage profile, in May 2020 our board of directors determined that we would temporarily suspend our monthly distribution. At its August 4, 2020 meeting, the board of directors undertook a full review of our rent collection results for the second quarter of 2020, preliminary collection results for July 2020, our outlook for collections in future months, and our overall liquidity position. Based on our strong collection results and operating performance, the board voted to reinstate a distribution, announcing that the Company would transition to quarterly distribution payments beginning with the quarter ended September 30, 2020. With the continued uncertainty surrounding the COVID-19 pandemic’s long term impact to our tenants, and the recent resurgence in certain geographical hot spots, the board set a $0.54 distribution per common share and OP Unit to stockholders and OP Unit holders of record as of September 30, ~~2019.~~2020, payable on or before October 15, 2020. The Company believes this quarter’s distribution is also an incrementally important step towards ensuring the Company satisfies its REIT distribution requirements for the year ended December 31, 2020.

~~Amended~~In addition to our ~~credit~~cash on hand, as of June 30, 2020, we also have $351.7 million of available capacity under our Revolving Credit Facility, and ~~term loan agreement to reduce~~$100 million of available capacity in the ~~margin above LIBOR paid~~form of an accordion feature on ~~the 2024~~our 2026 Unsecured Term ~~Loan (as defined below) from 1.90% to 1.25%.~~

Entered into a one-year $300 million unsecured delayed-draw term loan agreement (the “2020 Unsecured Term Loan”) with a syndicate of banks and financial institutions. We fully drew on this facility to partially fund the acquisition of the industrial and office portfolio.

~~Year-to-Date 2019 Highlights~~

~~For the nine months ended September 30, 2019, we:~~

~~Increased revenues to $213.9 million, representing growth of 22.7% compared to the nine months ended September 30, 2018.~~

Generated net income of $57.4 million, representing a decrease of $3.0 million, or 5.0%, compared to the nine months ended September 30, 2018. Earnings per diluted share was $2.28 for the nine months ended September 30, 2019, representing a decrease of $0.53 per diluted share, or 18.9%, compared to the nine months ended September 30, 2018.

Generated FFO of $122.1 million, representing an increase of $7.9 million, or 6.9%, compared to the nine months ended September 30, 2018. FFO per diluted share was $4.86 for the nine months ended September 30, 2019, representing a decrease of $0.45 per diluted share, or 8.5%, compared to the nine months ended September 30, 2018.

Generated AFFO of $107.6 million, representing an increase of $16.1 million, or 17.6%, compared to the nine months ended September 30, 2018. AFFO per diluted share was $4.28 for the nine months ended September 30, 2019, representing an increase of $0.02 per diluted share, or 0.5%, compared to the nine months ended September 30, 2018.

Closed 16 real estate acquisitions totaling $993.7 million, excluding capitalized acquisition costs, adding 66 new properties with a weighted average initial cash capitalization rate of 6.6%. At the time of acquisition, the properties had a weighted average remaining lease term of 12.3 years and weighted average annual rent increases of 2.1%.

Sold 25 properties, representing 2.6% of our portfolio value as of December 31, 2018, at a weighted average capitalization rate of 7.0%, for net proceeds of $90.1 million, recognizing a gain of $16.8 million above carrying value.

~~Received $307.9 million in investments from new and existing stockholders, including investments made through our DRIP.~~

FFO and AFFO are performance measures that are not calculated in accordance with accounting principles generally accepted in the United States of America (“GAAP”). We present these non-GAAP measures as we believe certain investors and other users of our financial information use them as part of their evaluation of our historical operating performance. See discussion below under the heading ~~Net Income and Non-GAAP Measures (FFO and AFFO), which includes discussion of the definition, purpose, and use of these non-GAAP measures as well as a reconciliation of each to the most comparable GAAP measure.~~

~~Internalization~~

On November 12, 2019, we issued a press release announcing that we had entered into a definitive agreement (the “Merger Agreement”) to internalize the external management functions (the “Internalization”) currently performed by the Manager. Upon consummation of the Internalization, our current management team and corporate staff, who are currently employed by the Manager, will become employed by an indirect subsidiary of ours, and we will become internally managed. Subject to the satisfaction of specified closing conditions, the Internalization is scheduled to close during the first quarter of 2020. The Merger Agreement does not provide that the completion of an initial public offering (“IPO”) is a condition to the closing of the Internalization.Loan. Under the terms of our credit agreements, we must maintain ratios of total indebtedness to total market value, and total unsecured indebtedness to total unencumbered eligible property value (together, “leverage covenant ratios”), of less than 60%, measured as of each quarter end. Taking into consideration our leverage covenant ratios, as of June 30, 2020 we had $148.8 million of available borrowing capacity under our covenants. Management believes we were in compliance with the ~~Merger Agreement, however, if~~terms of our covenants as of June 30, 2020.

We believe our cash on-hand, available capacity on our credit facilities, including the restrictions imposed by our covenant ratios, and our ability to manage distributions provide us with the ability to meet all current obligations and to maintain our REIT status, for at least the next four quarters. However, the COVID-19 pandemic’s ultimate impact to tenants is not yet known, and could result in significantly aged delinquencies and tenant defaults, which would have a direct impact on our leverage covenant ratios. See further discussion concerning our liquidity in Liquidity and Capital Resources below.

Other Considerations

Internal Controls over Financial Reporting and Disclosure Controls

We have taken proactive steps to maintain an appropriate internal control environment while migrating our workforce to a work from home dynamic. Our access to technology and online communications has required minimal changes to controls, none of which we deem material. We believe our existing disclosure controls are appropriate to address the reporting complexities presented by the COVID-19 pandemic.

Recent Developments — Internalization

In order to benefit from increasing economies of scale as we continue to grow, our board of directors made the decision to internalize our management structure, which was completed on February 7, 2020. In connection with the Internalization, we terminated our management agreements with BRE, entered into employment agreements with each of our named executive officers, and began directly employing 71 former employees of BRE. Our historical results of operations through February 7, 2020, include the payment of management fees that we will no longer pay following the Internalization and do not ~~complete an IPO by December 31, 2020, then~~include the ~~former owners~~direct compensation expense associated with our current 73 employees, or certain professional fees, consulting, portfolio servicing costs, and other general and administrative expenses not previously incurred based upon our externally managed structure. Additional details of the ~~Manager who receive~~ Internalization include the following:

As consideration in the Internalization, we issued 780,893 shares of our common stock, ~~and/or membership units~~and the OP issued 1,319,513 OP Units and we and the OP paid $31.0 million in cash, for aggregate consideration of approximately $209.5 million, and the OP assumed approximately $90.5 million of debt. Concurrent with the closing, we refinanced $60 million of the ~~Operating Company will be granted~~assumed debt with a new loan that is guaranteed by Amy L. Tait, our founder and Chairman, and certain ~~redemption rights as a means~~members of her family (“Founding Owners”), and repaid the remaining $30.5 million using borrowings from our Revolving Credit Facility.

In addition to ~~provide additional liquidity in~~ the ~~absence of an IPO.~~

~~The~~ consideration paid ~~pursuant to~~immediately following the Mergers, the Merger Agreement ~~will consist of (i) base~~provides that additional “earnout” consideration of ~~approximately $206 million plus assumption of debt of approximately $94 million, payable upon closing and (ii) additional consideration~~up to an aggregate of up to $75 million ~~payable~~(payable in four tranches of $10 million, $15 million, $25 million, and $25 ~~million~~million) will be due and payable to the former owners of BRE if certain milestones related to either (a) the 40-day dollar volume-weighted average price of ~~a share of the Company’s~~our common stock ~~(“VWAP per REIT Share”),~~on the principal exchange or securities market (or over-the-counter market) on which our shares of common stock are then traded, following the completion of an IPO, ~~of the Company’s common stock,~~ or (b) ~~the Company’s AFFO~~our adjusted funds from operations per share, prior to the completion of an IPO, are achieved during specified periods of time following the ~~closing~~completion of the Internalization. Should all earnout milestones be met, an additional 272,250 shares of common stock and 464,820 OP Units would be issued. The earnout liability had an estimated fair value of $40.1 million at the time of the Internalization.

We entered into a registration rights agreement with our founding owners and Trident BRE, LLC and its affiliates, and the Founding Owners’ Tax Protection Agreement.

Results of Operations

Overview

As of June 30, 2020, our real estate investment portfolio had a gross asset value of approximately $4.0 billion, consisting of investments in 632 commercial real estate properties with locations in 41 states and one real estate property located in British Columbia, Canada, and leased to tenants in various industries. All but seven of our properties were subject to a lease as of June 30, 2020.

Our historical results of operations for the six months ended June 30, 2020 and the three and six months ended June 30, 2019, discussed below, include the payment of asset and property management fees that we will no longer pay following the Internalization, and do not include the expected full impact of direct compensation expense associated with employees employed by us following the Internalization or incremental general and administrative expenses.

Lease Revenues, net

	For the three months ended											For the six months ended
	June 30,					Increase/(Decrease)						June 30,						Increase/(Decrease)
(in thousands)	2020			2019		$			%			2020			2019			$			%
Contractual rental amounts billed for operating leases and straight-line rent adjustments	$	75,618		$	65,563	$	10,055			15.3	%	$	150,111		$	129,153		$	20,958			16.2	%
Variable rental amounts earned		51			—		51		>100		%		74			—			74		>100		%
Adjustment to revenue recognized for uncollectible rental amounts billed		(1,190	)		—		(1,190	)	>100		%		(2,223	)		(440	)		(1,783	)	>100		%
Operating expenses billed to/reimbursed from tenants		4,335			2,486		1,849			74.4	%		8,067			6,761			1,306			19.3	%
Other income from real estate transactions		702			—		702		>100		%		731			—			731		>100		%
Total lease revenues from operating leases		79,516			68,049		11,467			16.9	%		156,760			135,474			21,286			15.7	%
Earned income from direct financing leases		855			1,004		(149	)		(14.8)	%		1,842			2,009			(167	)		(8.3)	%
Total Lease revenues, net	$	80,371		$	69,053	$	11,318			16.4	%	$	158,602		$	137,483		$	21,119			15.4	%

The increase in Lease revenues, net for the three and six months ended June 30, 2020, was primarily attributable to the growth in our real estate portfolio, which was achieved through accretive property acquisitions during 2019, weighted towards the second half of the year, and continued strong portfolio operating performance. In 2019, we significantly increased the size of our portfolio, adding 74 new properties at an aggregate cost of approximately $1.0 billion, excluding capitalized acquisition costs. As of June 30, 2020, we had collected approximately 93% of second quarter rents due and our portfolio was 99.5% occupied (based on rentable square footage). As of June 30, 2020, the ABR weighted average annual rent increases on our properties was 2.1%.

Operating Expenses

	For the three months ended										For the six months ended
	June 30,				Increase/(Decrease)						June 30,				Increase/(Decrease)
(in thousands)	2020		2019		$			%			2020		2019		$			%
Operating expenses
Depreciation and amortization	$	39,921	$	25,287	$	14,634			57.9	%	$	71,140	$	49,597	$	21,543			43.4	%
Asset management fees		—		5,318		(5,318	)		(100.0)	%		2,461		10,438		(7,977	)		(76.4)	%
Property management fees		—		1,935		(1,935	)		(100.0)	%		1,275		3,820		(2,545	)		(66.6)	%
Property and operating expense		4,190		3,252		938			28.8	%		8,305		7,642		663			8.7	%
General and administrative		5,700		1,389		4,311		>100		%		11,542		2,492		9,050		>100		%
Provision for impairment of investment in rental properties		534		—		534		>100		%		2,667		1,017		1,650		>100		%
Total operating expenses	$	50,345	$	37,181	$	13,164			35.4	%	$	97,390	$	75,006	$	22,384			29.8	%

Depreciation and amortization

The increase in depreciation and amortization expense for the three and six months ended June 30, 2020, is primarily due to the growth in our real estate portfolio.

Asset management fees and Property management fees

Prior to the Internalization on February 7, 2020, we paid our third-party manager a quarterly fee equal to 0.25% of the aggregate value of our equity on a fully diluted basis, based on the determined share value established by our board of directors (“Determined Share Value”). Additionally, we paid our third-party manager a monthly fee equal to 3% of gross rentals collected from our real estate portfolio as compensation for its property management services. Upon completion of the Internalization, ~~(“Earnout Periods”). The consideration will consist of~~the agreements with the third-party manager were terminated, resulting in a ~~combination of cash, shares of~~decrease in these expenses as compared to the ~~Company’s common stock,~~prior year period. Our management fees were replaced by compensation and ~~Operating Company membership units, at the election of the owners of the Manager.~~

~~The earnout tranches, applicable VWAP of a REIT Share~~related costs associated with an internalized management structure, and ~~AFFO per share,~~corresponding general and ~~the applicable Earnout Periods are as follows:~~

Earnout Tranche
If BNL has completed an IPO
If BNL has not completed an IPO
VWAP of a REIT Share
Applicable Earnout Period
AFFO per Share
Applicable Earnout Period
$10 million
$90.00
The two-year period beginning on the earlier of (i) the IPO closing date or (ii) December 31, 2020.
$5.85
The two-year period consisting of the calendar years ended December 31, 2020 and December 31, 2021.
$15 million
$95.00
The two-year period beginning on the earlier of (i) the IPO closing date or (ii) December 31, 2020.
$5.95
The two-year period consisting of the calendar years ended December 31, 2020 and December 31, 2021.
$25 million
$97.50
The four-year period beginning on the date that is exactly one year after the earnout period begins for the first and second tranches above.
$6.30
The four-year period consisting of the calendar years ended December 31, 2021, December 31, 2022, December 31, 2023 and December 31, 2024.
$25 million
$100.00
The four-year period beginning on the date that is exactly one year after the earnout period begins for the first and second tranches above.
$6.70
The four-year period consisting of the calendar years ended December 31, 2021, December 31, 2022, December 31, 2023 and December 31, 2024.

administrative expenses.

~~Potential benefits~~General and administrative

The increase in general and administrative expenses mainly reflects the impact of the Internalization, ~~include:~~and our current employment of approximately 73 employees. Following the Internalization, our asset and property management fees were replaced with compensation and related expenses, which totaled $3.8 million and $6.6 million during the three and six months ended June 30, 2020, respectively, along with associated general and administrative expenses.

~~Immediate Cost Savings; Economies~~Provision for impairment of ~~Scale with Growth~~ ~~– Through elimination~~investment in rental properties

During the three and six months ended June 30, 2020, we recognized $0.5 million and $2.7 million, respectively, 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 ~~property,~~or asset group exceeds the sum of the undiscounted cash flows expected to result from the use of the asset or asset group and ~~transaction-based fees currently payable under~~its eventual disposition. The timing and amount of impairment fluctuates from period to period depending on the ~~management agreements~~specific facts and circumstances.

Other income (expenses)

	For the three months ended												For the six months ended
	June 30,						Increase/(Decrease)						June 30,						Increase/(Decrease)
(in thousands)	2020			2019			$			%			2020			2019			$			%
Other income (expenses)
Interest income	$	11		$	—		$	11		>100		%	$	20		$	1		$	19		>100		%
Interest expense		(19,513	)		(16,732	)		2,781			16.6	%		(40,504	)		(32,560	)		7,944			24.4	%
Cost of debt extinguishment		—			(8	)		(8	)		(100.0)	%		(22	)		(721	)		(699	)		(96.9)	%
Gain on sale of real estate		1,046			2,787			(1,741	)		(62.5)	%		8,665			4,187			4,478		>100		%
Income taxes		(402	)		(305	)		97			31.8	%		(951	)		(748	)		203			27.1	%
Internalization expenses		(389	)		(272	)		117			43.0	%		(1,594	)		(272	)		1,322		>100		%
Change in fair value of earnout liability		6,321			—			6,321		>100		%		2,144			—			(2,144	)	>100		%
Other losses		(2	)		—			2		>100		%		(24	)		—			24		>100		%

Interest expense

The increased interest expense during the three and six months ended June 30, 2020, resulted primarily from an increase in average outstanding borrowings as compared to the three and six months ended June 30, 2019, due mainly to borrowings associated with a significant acquisition in the ~~Manager,~~third quarter of 2019, and ~~excluding the one-time costs~~incremental borrowings associated with the Internalization, partially offset by a 75 basis point decrease in our weighted average cost of debt, inclusive of our interest rate swaps. We were able to take advantage of the ~~proposed transaction is expected to result in immediate cost savings and facilitate increasing economies of scale~~decreasing interest rates since June 30, 2019, as our ~~equity~~percentage of floating-rate debt increased concurrently with our funding of the aforementioned acquisition. We also amended our 2024 Unsecured Term Loan in July 2019 to reduce the applicable margin from 1.90% to 1.25%.

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 ~~asset base grows.~~demand in the real estate market. During the three months ended June 30, 2020, we recognized gains of $1.0 million on the sale of three properties, compared to gains of $2.8 million on the sale of five properties during the three months ended June 30, 2019. During the six months ended June 30, 2020, we recognized gains of $8.7 million on the sale of 13 properties, compared to gains of $4.2 million on the sale of nine properties during the six months ended June 30, 2019.

~~Simplified Structure~~ ~~– The proposed~~ Internalization ~~will simplify our structure through~~expenses

During the ~~unification~~three and six months ended June 30, 2020, we incurred $0.4 million and $1.6 million, respectively, of ~~all of our investment activity, corporate operations,~~third-party fees and ~~resources under a single, transparent corporate structure, and provide us~~consulting expenses associated with the ~~ability~~Internalization that closed on February 7, 2020, compared to ~~control key functions~~$0.3 million of such expenses in the comparable prior year periods. We expect incremental internalization expenses in the future to be limited to third party legal and accounting fees related to residual work in connection with the transaction.

Change in fair value of earnout liability

As part of the Internalization we may be required to pay additional earnout consideration if certain milestones are achieved during the Earnout Periods. We record the fair value of this contingent consideration as an Earnout liability in the Condensed Consolidated Balance Sheets, and update the fair value at the end of each reporting period. We estimate the fair value of the earnout liability by considering weighted-average probabilities of likely outcomes, and using a Monte Carlo simulation and discounted cash flow analysis to estimate fair value. These estimates require the Company to make various assumptions about future share prices, timing of an IPO, and other items that are ~~important to~~unobservable and are considered Level 3 inputs in the growth of our business. Internalizing management will also mitigate perceived or actual existing conflicts of interest between us and the Manager resulting from the current external management structure.fair value hierarchy.

~~Continuity of Management Team; Brings Comprehensive Team into the Company~~ – Upon closing of the Internalization, we recorded an earnout liability of $40.1 million through our ~~existing management team, who are currently employees~~preliminary purchase price allocation, which decreased to $38.0 million as of ~~the Manager, including our current executive officers, will become employees~~June 30, 2020. The decrease in fair value between March 31, 2020 and June 30, 2020 is primarily a result of ~~the Company, providing~~ a seamless transition and clarity as to future senior leadership. Each of Christopher J. Czarnecki, Ryan M. Albano, John D. Moragne, and Sean T. Cutt are expected to terminate their employment with the Manager and enter into employment agreements with us or our subsidiary to serve as our Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, and Chief Investment Officer, respectively.

~~Additional information is available~~decrease in the Current Report on Form 8-K that we filed on November 12, 2019, with the U.S. Securities and Exchange Commission, including a detailed description of the merger agreement and the proposed transaction’s terms, conditions, covenants, and agreements.

~~Our Properties and Investment Objectives~~

~~We target acquisitions of fee simple interests~~estimated net asset value per share assumption used, partially offset by an increase in individual properties priced between $5 million and $75 million. Portfolios may be significantly larger, depending on balance sheet capacity and whether the portfolio is diversified or concentrated by tenant, geography, or brand. Our investment policy (“Investment Policy”) has three primary objectives:

~~preserve, protect, and return capital to investors,~~

~~realize increased cash available for distributions and long-term capital appreciation from growth in the value of our properties, and~~

~~maximize the level of sustainable cash distributions to our investors.~~

We acquire freestanding, single-tenant commercial properties primarily located in the United States either directly from our creditworthy tenants in sale-leaseback transactions, where they sell us their properties and simultaneously lease them back through long-term, net leases, or through the purchase of properties already under a net lease (~~i.e.~~, a lease assumption). Under either scenario, our properties are generally under lease and fully occupied at the time of acquisition. We focus on properties in growth markets with at least ten years of lease term remaining that are expected to achieve financial returns on equity of greater than 9.5%, net of fees, calculated based on the average return recognized across all acquisitions during a calendar year, provided that, with certain exceptions provided for in our Investment Policy, all acquisitions must have a minimum remaining lease term of seven years and a minimum return on equity of 8.5%, net of fees, unless otherwise approved by the Independent Directors Committee. Our criteria for selecting properties are based on the following underwriting principles:

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

~~creditworthiness of the tenant, and~~

~~transaction structure and pricing.~~

We believe we can achieve an appropriate risk-adjusted return through these underwriting principles and conservatively project a property’s potential to generate targeted returns from current and future cash flows. We believe targeted returns are achieved through a combination of in-place income at the time of acquisition, rent growth, and a property’s potential for appreciation.

To achieve an appropriate risk-adjusted return, we maintain a diversified portfolio of real estate spread across multiple tenants, industries, and geographic locations. The following charts summarize our portfolio diversification by property type, tenant industry, and geographic location as of September 30, 2019. The percentages below are calculated based on our NTM Rent as of September 30, 2019, 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.

~~Property Type, by % of NTM Rent~~

~~Property Type~~	~~% NTM Rent~~
~~Retail – other~~		~~10.5~~	%
~~Retail – quick service restaurants ("QSR")~~		~~8.0~~	%
~~Retail – casual dining~~		~~7.9~~	%
~~Total Retail~~		~~26.4~~	%
~~Industrial – warehouse/distribution~~		~~20.6~~	%
~~Industrial – manufacturing~~		~~11.2~~	%
~~Industrial – flex~~		~~5.5~~	%
~~Industrial – other~~		~~3.8~~	%
~~Total Industrial~~		~~41.1~~	%
~~Healthcare – clinical~~		~~11.7~~	%
~~Healthcare – surgical~~		~~3.2~~	%
~~Healthcare – other~~		~~3.0~~	%
~~Total Healthcare~~		~~17.9~~	%
~~Office~~		~~8.5~~	%
~~Other~~		~~6.1~~	%
~~Total~~		~~100.0~~	%

~~Tenant Industry, by % of NTM Rent~~

~~Industry~~	~~% NTM Rent~~
~~Restaurants~~		~~16.1~~	%
~~Healthcare Facilities~~		~~15.7~~	%
~~Packaged Foods & Meats~~		~~4.4~~	%
~~Food Distributors~~		~~4.3~~	%
~~Home Furnishing Retail~~		~~4.1~~	%
~~Specialized Consumer Services~~		~~3.7~~	%
~~Auto Parts & Equipment~~		~~3.4~~	%
~~Metal & Glass Containers~~		~~3.2~~	%
~~Healthcare Services~~		~~2.6~~	%
~~Air Freight & Logistics~~		~~2.6~~	%
~~Aerospace & Defense~~		~~2.5~~	%
~~Distributors~~		~~2.3~~	%
~~Electronic Components~~		~~2.2~~	%
~~Industrial Machinery~~		~~1.8~~	%
~~Home Furnishings~~		~~1.7~~	%
~~Top 15 Tenant Industries~~		~~70.6~~	%
~~Other (38 industries)~~		~~29.4~~	%
~~Total~~		~~100.0~~	%

~~Geographic Diversification, by % of NTM Rent~~

~~At September 30, 2019, 99.8% of our portfolio’s rentable square footage, representing all but four of our properties, is subject to a lease, substantially all~~peer stock price volatility, both of which are attributable to changes in economic circumstances impacting global equity markets, as detailed in Note 2 to the Condensed Consolidated Financial Statements above.

Net Income and Non-GAAP Measures (FFO and AFFO)

Our reported results and net ~~leases.~~earnings per diluted share are presented in accordance with GAAP. We doalso disclose FFO and AFFO, each of which are non-GAAP measures. We believe the presentation of FFO and AFFO are useful to investors because they are widely accepted industry measures used by analysts and investors to compare the operating performance of REITs. FFO and AFFO should not ~~currently engage in the development of real estate, which could cause~~be considered alternatives to net income as a ~~delay in timing between the funds used~~performance measure or to ~~invest in properties and the corresponding cash inflows from rental receipts. Our~~ cash flows from operations, ~~are primarily generated through~~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 Board of Governors of Nareit, the worldwide representative voice for REITs and publicly traded real estate ~~investment portfolio~~companies with an interest in the U.S. real estate and capital markets. Nareit defines FFO as GAAP net income or loss adjusted to exclude net gains (losses) from sales of certain depreciated real estate assets, depreciation and amortization expense from real estate assets, gains and losses from change in control, and impairment charges related to certain previously depreciated real estate assets. To derive AFFO, we modify the ~~monthly~~Nareit computation of FFO to include other adjustments to GAAP net income related to certain non-cash and non-recurring revenues and expenses, including straight-line rents, cost of debt extinguishments, amortization of lease intangibles, amortization of debt issuance costs, amortization of net mortgage premiums, (gain) loss on interest rate swaps and other non-cash interest expense, realized gains or losses on foreign currency transactions, internalization expenses, extraordinary items, and other specified non-cash items. We believe that such items are not a result of normal operations and thus we believe excluding such items assists management and investors in distinguishing whether changes in our operations are due to growth or decline of operations at our properties or from other factors.

Our leases include cash rents that increase over the term of the lease to compensate us for anticipated increases in market rentals over time. Our leases do not include significant fron t-loading or back-loading of payments, ~~under~~or significant rent-free periods. Therefore, we find it useful to evaluate rent on a contractual basis as it allows for comparison of existing rental rates to market rental rates. In situations where we have granted short-term rent deferrals as a result of the COVID-19 pandemic, and such deferrals are probable of collection and expected to be repaid within a short term, we will continue to recognize the same amount of GAAP lease revenues each period. The amounts temporarily deferred are recorded in tenant receivables until they are repaid. Consistent with GAAP lease revenues, the short-term deferrals associated with COVID-19 will not impact our ~~long-term leases with our tenants.~~AFFO.

~~Due to~~We further exclude costs or gains recorded on the ~~fact that substantially all~~extinguishment of debt, non-cash interest expense and gains, the amortization of debt issuance costs, net mortgage premiums, and lease intangibles, realized gains and losses on foreign currency transactions, and internalization expenses, as these items are not indicative of ongoing operational results. We use AFFO as a measure of our ~~properties~~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 ~~leased under long-term leases, we 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 ~~currently required~~be comparable to ~~perform significant ongoing leasing activities on our properties. The leases for three~~similarly titled measures employed by other REITs, and comparisons of our ~~properties, representing less than 1% of our annual rental streams (calculated based~~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 ~~NTM Rent), will expire before 2021. As of September 30, 2019,~~ the weighted average remaining term of our leases (calculated based on NTM Rent) was approximately 11.7 years, excluding renewal options, which are exercisable at the option of our tenants upon expiration of their base lease term. Less than 5%acceptability of the ~~properties~~adjustments to FFO that we use to calculate AFFO. In the future, the SEC, Nareit or another regulatory body may decide to standardize the allowable adjustments across the REIT industry and in response to such standardization we may have to adjust our portfolio are subject to leases without at least one renewal option. Furthermore, the weighted average remaining lease term on the $993.7 million in properties acquired during the nine months ended September 30, 2019, was 12.3 years at the timecalculation and characterization of acquisition. More than 59% of our rental revenue is derived from leases that expire during 2030 and thereafter. As of September 30, 2019, no more than 8.9% of our rental revenue is derived from leases that expire in any single year in the next ten years. The following chart sets forth our lease expirations based upon the terms of our leases in place as of September 30, 2019.

~~Lease Maturity Schedule, by % of NTM Rent~~

AFFO accordingly.

The following table presents our net income and our non-GAAP FFO and AFFO. Our measures of FFO and AFFO are computed on the ~~lease expirations by year, including~~basis of amounts attributable to both us and non-controlling interests. As the ~~number of tenants~~non-controlling interests share in our net income on a one-for-one basis, the basic and ~~properties with leases expiring,~~diluted per share amounts are the square footage covered by the leases expiring, the NTM Rent, and the percentage of NTM Rent for the leases expiring. Late payments, non-payments, or other unscheduled payments are not considered in the NTM Rent amounts. NTM Rent includes the impact of contractual rent escalations. Amounts are in thousands, except the number of tenants and properties. We did not have any significant lease renewals during the nine months ended September 30, 2019.same.

Year

Number of
Tenants

Number of
Properties

Square
Footage

NTM Rent

Percentage
of
NTM Rent

2020

4

3

87

$
629

0.2
%
2021

7

11

99

1,931

0.6
%
2022

5

4

124

3,285

1.1
%
2023

12

13

703

6,975

2.3
%
2024

13

14

1,672

13,737

4.6
%
2025

12

21

693

7,713

2.6
%
2026

22

34

1,521

18,551

6.2
%
2027

22

32

2,006

23,043

7.8
%
2028

24

36

2,715

26,555

8.9
%
2029

16

61

2,481

18,527

6.2
%
2030 and thereafter

110

429

15,322

176,196

59.3
%
Untenanted properties

—

4

51

—

—

Total

247

662

27,474

$
297,142

100.0
%

Our top tenants and brands by percentage of NTM Rent at September 30, 2019, are listed in the tables below. The percentages of NTM Rent shown are calculated based on the NTM Rent associated with the tenant or brand divided by total NTM Rent.

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

Tenant

Property Type

% NTM Rent

Properties

Art Van Furniture, LLC

Retail

2.8
%

10

Red Lobster Hospitality & Red Lobster Restaurants LLC

Retail

2.5
%

25

Jack's Family Restaurants LP

Retail

2.0
%

36

Axcelis Technologies, Inc.

Other

1.9
%

1

Hensley & Company

Industrial

1.9
%

3

Outback Steakhouse of Florida LLC ^(a)

Retail

1.9
%

24

Krispy Kreme Doughnut Corporation

Industrial/Retail

1.7
%

27

BluePearl Holdings, LLC

Healthcare

1.7
%

12

Big Tex Trailer Manufacturing, Inc.

Industrial/Retail/Office

1.6
%

17

Siemens Medical Solutions USA, Inc. & Siemens Corporation

Industrial

1.6
%

2

Total Top Ten

19.6
%

157

All Other

80.4
%

505

Total

100.0
%

662

	For the three months ended										For the six months ended
	June 30,				Increase/(Decrease)						June 30,				Increase/(Decrease)
(in thousands, except per share data)	2020		2019		$			%			2020		2019		$			%
Net income	$	17,098	$	17,342	$	(244	)		(1.4)	%	$	28,946	$	32,364	$	(3,418	)		(10.6)	%
Net earnings per diluted share		0.57		0.70		(0.13	)		(18.6)	%		0.98		1.32		(0.34	)		(25.8)	%
FFO		56,485		39,842		16,643			41.8	%		94,057		78,791		15,266			19.4	%
FFO per diluted share		1.89		1.60		0.29			18.1	%		3.19		3.22		(0.03	)		(0.9)	%
AFFO		46,056		34,637		11,419			33.0	%		87,124		68,806		18,318			26.6	%
AFFO per diluted share		1.54		1.39		0.15			10.8	%		2.96		2.81		0.15			5.3	%
Diluted WASO⁽^a)		29,912		24,941		4,971			19.9	%		29,482		24,507		4,975			20.3	%

^(a)	~~Tenant’s properties include 22 Outback Steakhouse restaurants~~Weighted average number of shares of our common stock and ~~two Carrabba’s Italian Grill restaurants.~~

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

Brand

Property Type

% NTM Rent

Properties

Art Van Furniture

Retail

2.8
%

10

Bob Evans Farms ^(a)

Industrial/Retail

2.6
%

27

Red Lobster

Retail

2.5
%

25

Wendy's

Retail

2.1
%

41

Jack's Family Restaurants

Retail

2.0
%

36

Axcelis

Other

1.9
%

1

Hensley

Industrial

1.9
%

3

Krispy Kreme

Industrial/Retail

1.7
%

27

BluePearl Veterinary Partners

Healthcare

1.7
%

12

Outback Steakhouse

Retail

1.6
%

22

Total Top Ten

20.8
%

204

All Other

79.2
%

458

Total

100.0
%

662

^(a)	~~Brand includes two BEF Foods, Inc. properties and 25 Bob Evans Restaurants, LLC properties.~~OP Units outstanding (“WASO”), computed in accordance with GAAP.

Net income

~~Leverage Policy~~

~~Moody’s Investors Service (“Moody’s”) has assigned~~For the ~~Operating Company an investment grade credit rating of Baa3~~three months ended June 30, 2020, compared to the three months ended June 30, 2019, net income decreased primarily due to a $14.6 million increase in depreciation and amortization expense associated with a ~~stable outlook, which allows us~~larger real estate portfolio, a $2.8 million increase in interest expense associated with incremental borrowings used to ~~take advantage~~partially fund our real estate acquisitions and the Internalization, and a $1.7 million decrease in gains on sale of ~~preferential borrowing margins and provides more attractive access to the debt markets, including the debt private placement market. The Operating Company’s credit rating is based on a number~~real estate. These factors were partially offset by revenue growth of factors, including an assessment of our financial strength, portfolio size and diversification, credit and operating metrics, corporate governance policies, and sustainability of cash flow and earnings. While Moody’s utilizes other factors outside of our leverage ratio in assigning ratings, we are strongly committed to maintaining a modest leverage profile commensurate with our investment grade rating. Our leverage policy (“Leverage Policy”) is to maintain a leverage ratio in the 35% to 45% range based on the approximate market value of our assets, recognizing that the actual leverage ratio may vary over time and there may be opportunistic reasons to exceed a 45% leverage ratio; provided, however, that we cannot exceed a 50% leverage ratio without the approval of the Independent Directors Committee. The Independent Directors Committee reviews our Leverage Policy at least annually; however, depending on market conditions and other factors, they may change our Leverage Policy from time to time.

To reduce our exposure to variable-rate debt, we enter into interest rate swap agreements to fix the rate of interest as a hedge against interest rate fluctuations on floating-rate debt. These interest rate hedges have staggered maturities to reduce the exposure to interest rate fluctuations in any one year, and generally extend up to 10 years. The interest rate swaps are applied against a pool of variable-rate debt, which offers flexibility in maintaining our hedge designation concurrent with our ongoing capital markets activity. We attempt to limit our total exposure to floating-rate debt to no more than 5% of the approximate market value of our assets, measured at quarter end.

~~As of September 30, 2019, our total outstanding indebtedness was $2,096.2~~$11.3 million and the ~~ratio~~impact of ~~our total indebtedness~~a $6.3 million adjustment to ~~the approximate market value of our assets was 47.5%.~~

~~Determined Share Value~~

We sell shares of our common stock in our ongoing private offering at a price equal to a determined share value (the “Determined Share Value”), which is established at least quarterly by the Independent Directors Committee based on the net asset value (“NAV”) of our portfolio, input from management and third-party consultants, and such other factors as the Independent Directors Committee may determine. At its October 31, 2019 meeting, the Independent Directors Committee determined that the Determined Share Value would remain at $85.00 per share through January 31, 2020. 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 Part II, Item 5. “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” of our Form 10-K. The following table presents the Determined Share Value for each period indicated below, together with the corresponding NAV per diluted share as of the preceding quarter end:

Period

NAV as of

NAV per
diluted share

Determined
Share Value

November 1, 2019 - January 31, 2020

September 30, 2019

$
84.12

$
85.00

August 1, 2019 - October 31, 2019

June 30, 2019

$
84.68

$
85.00

May 1, 2019 - July 31, 2019

March 31, 2019

$
85.57

$
86.00

~~The adjustments made to NAV per diluted share in arriving at the Determined Share Value for the periods presented above account for the inherent imprecision in the valuation estimates.~~

~~The following table provides a breakdown of the major components of our estimated NAV and NAV per diluted share amounts (in thousands, except per share amounts):~~

NAV component:

September 30,
2019

June 30,
2019

Investment in rental property

$
4,465,457

$
3,704,911

Debt

(2,180,100
)

(1,529,385
)
Other assets and liabilities, net

4,373

(19,078
)
NAV

$
2,289,730

$
2,156,448

Number of outstanding shares, including noncontrolling interests

27,219

25,467

NAV per diluted share

$
84.12

$
84.68

The following table details the implied market capitalization rates (shown on a weighted average basis) used to value the investment in rental property, by property type, as of September 30, 2019, and June 30, 2019, supporting the Determined Share Value in effect for the period from November 1, 2019 through January 31, 2020, and August 1, 2019 through October 31, 2019, respectively:

Market capitalization rates, as of:

Retail

Industrial

Healthcare

Office

Other

Portfolio
Total

September 30, 2019

6.37
%

6.65
%

6.73
%

6.85
%

7.39
%

6.64
%
June 30, 2019

6.40
%

6.89
%

6.73
%

6.90
%

7.36
%

6.72
%

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, 2019, of 0.25% would result in a decrease in the fair value of our ~~investment~~earnout liability in ~~rental property of 3.6%, and our NAV per diluted share would have been $78.18. Conversely, a decrease~~2020 with no comparable adjustment in the ~~weighted average implied market capitalization rate used~~prior year. In addition, as a result of ~~September~~the Internalization, increased general and administrative expenses of $4.3 million were offset by $7.3 million lower asset management and property management fees. For the six months ended June 30, 2020, compared to the six months ended June 30, 2019, ~~of 0.25% would result~~net income decreased primarily due to a $21.5 million increase in andepreciation and amortization expense, a $7.9 million increase in interest expense, a $1.7 million increase in impairment charges, a $1.3 million increase in internalization expenses, and a $2.1 million adjustment to the fair value of our ~~investment~~earnout liability in ~~rental~~2020 with no comparable adjustment in the prior year. These factors were partially offset by revenue growth of $21.1 million and increased gains on sale of real estate in the amount of $4.5 million. In addition, as a result of the Internalization, increased general and administrative expenses of $9.1 million were offset by $10.5 million lower asset management and property management fees.

GAAP net income includes items such as gain or loss on sale of ~~3.9%,~~real estate and provisions for impairment, among others, which can vary from quarter to quarter and impact period-over-period comparisons. These fluctuations, combined with the increase in our ~~NAV~~weighted average shares outstanding, contributed to the $0.13 decrease in net earnings per diluted share for the three months ended June 30, 2020 and a $0.34 decrease in net earnings per diluted share for the six months ended June 30, 2020.

AFFO

The increase in AFFO during the three and six months ended June 30, 2020, as compared to the same periods in 2019, was primarily driven by revenue growth, which resulted from rent escalations associated with our same property portfolio, accretive acquisitions and strong portfolio operating performance, as well as decreased asset and property management fees as a result of terminating the associated agreements in connection with the Internalization, discussed above. These factors were partially offset by increased general and administrative expense related to incremental compensation and related costs associated with an internalized management structure, combined with increased interest expense associated with incremental borrowings. We are realizing the cost savings associated with being internally managed. During the first six months of 2020, amounts incurred for general and administrative expenses were approximately $5.1 million less than the combined asset and property management fees that we would have ~~been $90.53.~~paid under our previous external management structure. Approximately $3.5 million of these savings were realized during the second quarter of 2020, our first full quarter operating under an internally managed structure.

~~Distributions~~The $0.15 increase in AFFO per diluted share during the three and ~~Distribution Reinvestment~~

~~At its October 31, 2019 meeting,~~six months ended June 30, 2020, was primarily due to the factors discussed above, partially offset by an increase in BNL’s weighted average shares outstanding resulting from continued equity raises associated with our ~~board of directors declared monthly distributions of $0.44 per share of our common stock and unit of membership interest to be paid~~deleveraging plans subsequent to our ~~stockholders~~Industrial Portfolio acquisition in the third quarter of 2019, combined with the common shares and ~~members~~OP Units issued in conjunction with the Internalization. The cost savings associated with an internalized management structure, combined with continued positive operating performance, more than offset the dilutive effect of the ~~Operating Company (other than us) of record~~higher share count as ~~follows:~~

~~Record Date~~		~~Payment Date~~ ~~(on or before)~~
~~November 27, 2019~~		~~December 13, 2019~~
~~December 30, 2019~~		~~January 15, 2020~~
~~January 30, 2020~~		~~February 14, 2020~~

Investors may purchase additional shares of our common stock by electing to reinvest their distributions through our DRIP. Cash distributions will be reinvested in additional shares of common stock at a per share price equal to 98% of the Determined Share Value as of the applicable distribution date. Refercompared to the ~~section titled~~ ~~Distribution~~three and ~~Distribution Reinvestment~~ ~~in Part II, Item 5. “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” of our Form 10-K for additional discussion of our DRIP.~~

~~The following table summarizes distributions paid in cash and pursuant to our DRIP for the nine~~six months ended ~~September~~June 30, ~~2019 (in thousands).~~

Month

Year

Cash
Distribution -
Common
Stockholders

Cash
Distribution -
Membership
Units

Distribution
Paid
Pursuant to
DRIP on
Common
Stock ^(a)

Distribution
Paid
Pursuant to
DRIP on
Membership
Units ^(a)

Total
Amount of
Distribution

January

2019

$
4,634

$
617

$
4,730

$
130

$
10,111

February

2019

4,691

617

4,800

130

10,238

March

2019

4,836

632

5,003

132

10,603

April

2019

4,879

631

5,092

132

10,734

May

2019

4,917

632

5,176

133

10,858

June

2019

5,017

632

5,207

133

10,989

July

2019

5,108

632

5,247

133

11,120

August

2019

5,178

632

5,291

133

11,234

September

2019

5,401

631

5,532

132

11,696

Total

$
44,661

$
5,656

$
46,078

$
1,188

$
97,583

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

~~The following table summarizes~~2019. We expect this accretion will continue to increase as we grow our ~~distributions paid, including the source~~portfolio and recognize economies of ~~distributions and a comparison against FFO (in thousands).~~

For the nine months ended

September 30,

2019

2018

Distributions:

Paid in cash

$
51,505

$
44,650

Reinvested in shares

46,078

37,055

Total Distributions

$
97,583

$
81,705

Source of Distributions:

Cash flow from operating activities

$
97,583

$
81,705

FFO

$
122,071

$
114,188

~~For the nine months ended September 30, 2019 and 2018, 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.~~scale.

Reconciliation of Non-GAAP Measures

The following is a reconciliation of net income to FFO and AFFO, which are non-GAAP financial measures. Also presented are the diluted WASO and per diluted share amounts:

	For the three months ended						For the six months ended
(in thousands, except per share data)	June 30,						June 30,
	2020			2019			2020			2019
Net income	$	17,098		$	17,342		$	28,946		$	32,364
Real property depreciation and amortization		39,899			25,287			71,109			49,597
Gain on sale of real estate		(1,046	)		(2,787	)		(8,665	)		(4,187	)
Provision for impairment on investment in rental properties		534			—			2,667			1,017
FFO	$	56,485		$	39,842		$	94,057		$	78,791
Capital improvements / reserves		—			(48	)		—			(97	)
Straight-line rent adjustment		(6,151	)		(5,240	)		(7,763	)		(10,383	)
Adjustment to provision for credit losses		(110	)		—			(127	)		—
Cost of debt extinguishment		—			8			22			721
Amortization of debt issuance costs		821			597			1,709			1,150
Amortization of net mortgage premiums		(37	)		(36	)		(72	)		(71	)
Gain on interest rate swaps and other non-cash interest expense		(41	)		(41	)		(83	)		(122	)
Amortization of lease intangibles		1,019			(717	)		(119	)		(1,455	)
Internalization expenses		389			272			1,594			272
Severance		—			—			26			—
Change in fair value of earnout liability		(6,321	)		—			(2,144	)		—
Other losses		2			—			24			—
AFFO	$	46,056		$	34,637		$	87,124		$	68,806

Diluted WASO		29,912			24,941			29,482			24,507

Net earnings per share, basic and diluted	$	0.57		$	0.70		$	0.98		$	1.32
FFO per diluted share		1.89			1.60			3.19			3.22
AFFO per diluted share		1.54			1.39			2.96			2.81

Liquidity and ~~Capital~~Capital Resources

~~General~~

General

We acquire real estate using a combination of debt and equity capital and with cash from operations that is not otherwise distributed to our stockholders. Our focus is on maximizing the risk-adjusted return to our stockholders through an appropriate balance of debt and equity in our capital structure. ~~Therefore, we attempt~~We are committed to ~~maintain a conservative~~maintaining an investment grade balance sheet through active management of our leverage profile ~~with total debt equal to 35% to 45% of the approximate market value of our assets.~~and overall liquidity position. We believe our leverage model has allowed us to take advantage of the lower cost of debt while simultaneously strengthening our balance sheet, as evidenced by our investment grade credit ~~rating.~~rating of Baa3 from Moody’s Investors Service (“Moody’s”), which Moody’s reaffirmed on July 31, 2020. As of ~~September~~June 30, ~~2019, the~~2020, our leverage ratio was ~~47.5%~~45.4% of the approximate market value of our assets, compared to ~~40.2%~~45.8% as of ~~June 30,~~December 31, 2019. ~~The increase was due~~

Liquidity/REIT Requirements

Liquidity is a measure of our ability to incremental borrowings associated with funding the industrial and office portfolio acquisition during the third quarter. We intend to reduce our leverage profile in the near term, to a range within the leverage profile consistent with our investment grade credit rating, using a combination of proceeds frommeet potential cash requirements, including our ongoing ~~private offering of shares~~commitments to repay debt, fund our operations, acquire properties, make distributions to our stockholders, and other general business needs. As a REIT, we are required to distribute to our stockholders at least 90% of our ~~common stock~~REIT taxable income determined without regard to the dividends paid deduction and ~~increasing disposition activity.~~excluding net capital gain, on an annual basis. As a result, it is unlikely that we will be able to retain substantial cash balances to meet our long-term liquidity needs, including repayment of debt and the acquisition of additional properties, from our ~~announcing the industrial and office portfolio acquisition, Moody’s affirmed~~annual taxable income. Instead, we expect to meet our ~~investment grade credit rating and stable outlook.~~

~~Management and our credit rating agencies also consider our leverage position as a multiple~~long-term liquidity needs primarily by relying upon external sources of Earnings Before Interest Taxes Depreciation and Amortization (“EBITDA”), a non-GAAP financial measure. EBITDA is a metric we use to measure leverage in the context of our cash flow expectations and projections. Given the significance of our recent growth, however, adding $993.7 million in investments during the nine months ended September 30, 2019, $606.8 million in investments during 2018, and $683.6 million in investments during 2017, coupled with our continued strategic growth initiatives, historical EBITDA may not provide investors with an adequate picture of the contractual cash inflows associated with these investments. Our investments are typically made throughout the year (historically, a significant portion has occurred later in the year), and therefore the full-year, or “normalized,” cash flows will not be realized until subsequent years. Accordingly, we look at contractual, “normalized,” cash flows and EBITDA as an appropriate metric to manage our leverage profile. We utilize this analysis inclusive of our focus on debt-to-market value metrics.capital.

Short-term Liquidity Requirements

Our ~~primary cash expenditures include the monthly interest payments we make on the debt we use~~short-term liquidity requirements consist primarily of funds necessary to ~~finance~~pay for our ~~real estate investment portfolio, asset management and property management fees for servicing~~operating expenses, including our ~~portfolio, acquisition costs related to the growth of our portfolio, and the~~ general and administrative expenses ~~of operating~~as well as interest payments on our ~~business.~~outstanding debt and to pay distributions. Since our portfolio has a strong occupancy level and substantially all of our leases are net leases, 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, although, in most cases we are reimbursed by the tenants. Accordingly, we do not currently anticipate making significant capital expenditures or incurring other significant property ~~costs on an aggregate basis during the term of the property leases in~~costs. We expect to meet our ~~current portfolio. To the extent that we have vacant properties, we will incur certain costs to operate~~short-term liquidity requirements primarily from cash and ~~maintain the properties, however, we do not currently expect these costs to be material.~~

~~As shown in the table below,~~cash equivalents balances, net cash provided by operating activities, increased by $17.4 million, to $110.9 million for the nine months ended September 30, 2019, from $93.5 million for the nine months ended September 30, 2018. We funded real estate investment activity with a combination of cash from operations, proceeds from our unsecured revolving credit agreements,and borrowing under our Revolving Credit Facility. Additionally, on May 5, 2020 we exercised our first of two options, effective August 2, 2020, to extend the maturity date of our $240 million 2020 ~~and 2026~~ Unsecured Term ~~Loans, and proceeds from~~Loan for a period of six months in exchange for a fee of $0.1 million. Refer to Recent Developments – COVID-19 Pandemic for additional discussion regarding the ~~issuance~~pandemic’s impact on our liquidity.

Long-term Liquidity Requirements

Our long-term liquidity requirements consist primarily of ~~common stock. We paid cash dividends~~funds necessary to our stockholders and holders of non-controlling membership units of $52.2 million and $45.0 million for the nine months ended September 30, 2019 and 2018, respectively. The increased dividends between periods were primarily funded by cash provided by our operations. Cash and cash equivalents and restricted cash totaled $44.1 million and $28.0 million at September 30, 2019 and 2018, respectively.

For the nine months ended

September 30,

(In thousands)

2019

2018

Net cash provided by operating activities

$
110,933

$
93,517

Net cash used in investing activities

(870,227
)

(274,590
)
Net cash provided by financing activities

784,420

199,002

Increase in cash and cash equivalents and restricted cash

$
25,126

$
17,929

Substantially all of our cash from operations is generated by our real estate portfolio. As of September 30, 2019, the historical cost basis of our real estate investment portfolio totaled $3,501.5 million, consisting of investments in 662 properties. During the first nine months of 2019, our portfolio generated average monthly straight-line rent revenues of approximately $22.3 million, and average monthly contractual cash revenues of approximately $20.6 million. During the nine months ended September 30, 2019, we closed 16 real estate acquisitions totaling $993.7 million, excluding capitalized acquisition costs, adding 66 new properties to our portfolio. We currently expect the new properties will generate approximately $6.0 million in monthly straight-line rent revenues and approximately $5.5 million in monthly contractual cash revenues over the next twelve months.

~~Capital Resources~~

We intend to continue to grow through additional real estate investments. To accomplish this objective, we must continue to identify acquisitions that are consistent with our investment policy and raise additionalrepay debt and ~~equity capital. We have financed our acquisition of properties using a combination of debt and equity capital. We seek to maintain an appropriate balance of debt and equity capital~~invest in our overall leverage policy, while maintaining a focus on increasing core value for existing stockholders, which we seek to achieve through earnings growth and share price appreciation. The mix of our financing sources may change over time based on market conditions and our liquidity needs.

~~Equity Capital Resources~~

Equity capital for our real estate acquisition activity is provided by the proceeds of our ongoing private offering, including distributions reinvested through our DRIP. During the nine months ended September 30, 2019, we raised approximately $307.9 million in equity capital to be used in our acquisition activities. See Part II, Item 2. “Unregistered Sales of Equity Securities and Use of Proceeds” of this Form 10-Q for further information.

~~Debt Capital Resources~~

additional revenue generating properties. Debt capital is provided through unsecured term notes, revolving debt facilities, and senior unsecured notes.

The source and mix of our debt capital in the future will be impacted by market conditions as well as our continued focus on lengthening our debt maturity profile to better align with our portfolio’s lease terms, staggering debt maturities to reduce the risk that a significant amount of debt will mature in any single year in the future, and managing our exposure to interest rate risk.

We expect to meet our long-term liquidity requirements primarily from borrowings under our Revolving Credit Facility, future debt and equity financings, and proceeds from limited sales of our properties. Our ability to access these capital sources may be impacted by unfavorable market conditions, particularly in the debt and equity capital markets, that are outside of our control. In addition, our success will depend on our operating performance, our borrowing restrictions, our degree of leverage, and other factors. Our acquisition growth strategy significantly depends on our ability to obtain acquisition financing on favorable terms. We seek to reduce the risk that long-term debt capital may be unavailable to us by strengthening our balance sheet by investing in real estate with creditworthy tenants and lease guarantors, and by maintaining an appropriate mix of debt and equity capitalization. We also, from time to time, obtain or assume non-recourse mortgage financing from banks and insurance companies secured by mortgages on the corresponding specific property. Mortgages, however, are not currently a strategic focus of the active management of our leverage profile. Rather, we enter into mortgages and notes payable as ancillary business transactions on an as-needed basis, most often as the result of lease assumption transactions. Our fiscal strength has enabled us to build a portfolio that is approximately 95% unencumbered on a gross assets basis, with 627 unencumbered properties and approximately $109.3 million of mortgage debt on the remaining properties.

~~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~~Equity Capital Resources

Equity capital may be unavailable to us by strengthening our balance sheet by investing in real estate with creditworthy tenants and lease guarantors, and by maintaining an appropriate mix of debt and equity capitalization. As we growfor our real estate ~~portfolio,~~acquisition activity has historically been provided from the proceeds of our private offering, including distributions reinvested through our DRIP. We suspended our private offering on January 10, 2020, in connection with our confidential submission of a draft registration statement on Form S-11 with the SEC relating to a proposed IPO. Accordingly, we ~~intend to manage~~did not raise any equity through our ~~debt maturities to reduce the risk that a significant amount of debt will mature in any single year in the future. For example,~~private offering during the first ~~quarter~~six months of ~~2019,~~2020. During the six months ended June 30, 2020, we ~~used proceeds from the longer-term 2026 Unsecured Term Loan (as defined below) to repay a shorter-term unsecured term loan that had been due~~raised approximately $5.9 million in ~~2019 (the “2019 Unsecured Term Loan”). Refer to~~ ~~Contractual Obligations~~ ~~below~~equity capital through our DRIP. See Part II, Item 2. “Unregistered Sales of Equity Securities and Use of Proceeds” of this Quarterly Report on Form 10-Q for further ~~details of the maturities~~information. We announced on January 10, 2020 that we were terminating our ~~contractual obligations, including long-term debt maturities.~~DRIP, effective February 10, 2020.

Credit Rating

We achieved our current investment grade credit rating of Baa3 based on our conservative leverage profile, diversified real estate investment portfolio, access to capital, and earnings stability provided by the creditworthiness of our ~~tenants, which we intend to maintain concurrent with our growth objectives.~~tenants. Factors that could negatively impact our credit rating include, but are not limited to: a significant increase in our leverage on a sustained basis, a significant increase in the proportion of secured debt levels, a significant decline in our unencumbered asset base, weakening of our corporate governance structure, and a significant decline in our real estate portfolio ~~diversification.~~diversification or the creditworthiness of our tenants. Factors that could positively impact our credit rating include, but are not limited to, continued growth in the portfolio, improvement in our leverage profile, lengthening of our debt maturity profile, and our Internalization. We have aligned our strategic growth priorities with these factors, as we believe the favorable debt pricing and access to multiple sources of debt capital resulting from ~~the~~our investment grade credit rating, provides us with an advantageous cost of capital and risk-adjusted return on investment for our stockholders.

Existing ~~Debt~~Credit Facilities

The following table sets forth our outstanding Revolving Credit Facility, unsecured term loans and Senior Notes as of June 30, 2020.

(in thousands, except interest rates)	Outstanding Balance			Interest Rate	Maturity Date
2020 Unsecured Term Loan	$	240,000		one-month LIBOR + 1.25%	Feb. 2021
Unsecured Revolving Credit and Term Loan Agreement
Revolving Credit Facility		248,300		one-month LIBOR + 1.20%	Jan. 2022
2023 Unsecured Term Loan		265,000		one-month LIBOR + 1.35%	Jan. 2023
2024 Unsecured Term Loan		190,000		one-month LIBOR + 1.25%	Jun. 2024
		703,300
2022 Unsecured Term Loan		60,000		one-month LIBOR + 1.25%	Feb. 2022
2026 Unsecured Term Loan		450,000		one-month LIBOR + 1.85%	Feb. 2026
Senior Notes
Series A		150,000		4.84%	Apr. 2027
Series B		225,000		5.09%	Jul. 2028
Series C		100,000		5.19%	Jul. 2030
		475,000
Total		1,928,300
Debt issuance costs, net		(6,908	)
	$	1,921,392

2020 Unsecured Term Loan

~~On August 2, 2019 we entered into the~~The 2020 Unsecured Term ~~Loan, under which we could borrow up to $300 million between~~loan had an initial maturity date of August ~~2, 2019 and November 2, 2019. We drew the entire amount available under the 2020 Unsecured Term Loan on August 28, 2019, to partially fund the industrial and office portfolio acquisition.~~2020. Borrowings under the 2020 Unsecured Term Loan ~~are payable~~bear interest ~~only over the term of the loan, with the principal balance due in full~~at variable rates based on August 2, 2020, provided that we have two options to extend the maturity date for a six-month period for each extension (for a total possible extension of up to one year), subject to payment of an extension fee. The rate of interest payable on borrowings under the 2020 Unsecured Term Loan, at our option, is equal to LIBOR plus a ~~margin.~~margin based on our credit rating ranging between 0.85% and 1.65% per annum. Based on our ~~investment grade~~current credit rating, the applicable margin is ~~currently~~ 1.25%. as of June 30, 2020. The 2020 Unsecured Term Loan allows for two six-month extensions, at our option, subject to our being in compliance with the debt covenants and customary representations and warranties, and payment of a fee equal to 0.05% of the outstanding principal balance at the time of extension. We exercised the first of these options, effective as of August 2, 2020, extending the loan’s maturity to February 2021.

Revolving Credit Facility

The Revolving Credit Facility has a maximum availability of $600 million, and includes a $35 million sublimit for swingline loans and $20 million available for issuance of letters of credit. The Revolving Credit Facility has an initial maturity date of January 2022 and provides for one five-month extension, at our election, subject to certain conditions set forth in the agreement and payment of a 0.0625% fee on the revolving commitments. The Revolving Credit Facility contains an applicable facility fee ranging between 0.125% and 0.30% per annum, based on our credit rating. Based on our current credit rating of Baa3, the facility fee is 0.25% per annum as of June 30, 2020.

Borrowings on the Revolving Credit Facility bear interest at variable rates based on LIBOR plus a margin based on our credit rating ranging between 0.825% and 1.55% per annum. Based on our current credit rating, the applicable margin is 1.20% as of June 30, 2020.

2023 Unsecured Term Loan

The 2023 Unsecured Term loan has an initial maturity date of January 2023. Borrowings under the 2023 Unsecured Term Loan bear interest at variable rates based on LIBOR plus a margin based on our credit rating ranging between 0.90% and 1.75% per annum. Based on our current credit rating, the applicable margin is 1.35% as of June 30, 2020.

2024 Unsecured Term Loan

The 2024 Unsecured Term Loan has an initial maturity date of June 2024. Borrowings under the 2024 Unsecured Term Loan are subject to interest at variable rates based on LIBOR plus a margin based on our credit rating ranging between 0.85% and 1.65% per annum. Based on our current credit rating, the applicable margin is 1.25% as of June 30, 2020.

2022 Unsecured Term Loan

On February 7, 2020, we entered into a $60 million term loan agreement maturing in February 2022 with JP Morgan Chase Bank, N.A., as administrative agent. The 2022 Unsecured Term Loan was used to partially repay BRE debt that we assumed as part of the Internalization. Borrowings under the 2022 Unsecured Term Loan are subject to interest only payments at variable rates equal to LIBOR plus a margin based on our credit rating, ranging between 0.85% and 1.65% per annum. Based on our current credit rating, the applicable margin is 1.25% as of June 30, 2020.

2026 Unsecured Term Loan

On February 27, 2019, we entered into a $450 million seven-year unsecured term loan agreement (the “2026 Unsecured Term Loan”). At closing, we borrowed $300 million under the 2026 Term Loan and used the proceeds to fully repay our 2019 Unsecured Term Loan. On August 27, 2019, we borrowed the remaining $150 million to partially fund the industrial and office portfolio acquisition. The 2026 Unsecured Term Loan includes an accordion feature that ~~can~~provides for an increase in the facility size up to a total of $550 million of available capacity. Borrowings under the 2026 Unsecured Term Loan are payable interest only on a monthly basis during the term of the loan, with the principal

amount due onin February ~~27,~~ 2026. ~~The rate of interest payable on borrowings~~Borrowings under the 2026 Unsecured Term ~~Loan, at our option, is~~loan bear interest equal to LIBOR plus a ~~margin.~~margin based on our credit rating ranging between 1.45% and 2.40% per annum. Based on our ~~investment grade~~current credit rating, the applicable margin is ~~currently~~ 1.85%.

~~Credit Facility~~

As of September 30, 2019, we have a $1.055 billion unsecured credit facility and term loan agreement (the “Credit Facility”), which is comprised of (i) a $600 million senior unsecured revolving credit facility (the “Revolver”), (ii) a $265 million senior unsecured delayed draw term loan due in 2023 (the “2023 Unsecured Term Loan”), and (iii) a $190 million senior unsecured delayed draw term loan due in 2024 (the “2024 Unsecured Term Loan”). Borrowings under the Credit Facility are payable interest only during the term of the appropriate loan tranche, with the principal amount due in full on the applicable maturity date. On July 1, 2019, we amended the Credit Facility to reduce the margin above LIBOR paid on the 2024 Unsecured Term Loan from 1.90% to 1.25%.

~~The following table summarizes the amounts drawn and available to be drawn on the Credit Facility and the 2020 and 2026 Unsecured Term Loans~~ as of ~~September~~June 30, ~~2019 (in thousands, excluding Loan Tranche and Maturity Date).~~2020.

Loan Tranche

Amount Drawn

Amount
Available

Total Capacity

Maturity Date
Credit Facility:

Revolver

$
303,300

$
296,700

$
600,000

January 21, 2022^(a)
2023 Unsecured Term Loan

265,000

—

265,000

January 23, 2023
2024 Unsecured Term Loan

190,000

—

190,000

June 21, 2024
2020 Unsecured Term Loan

300,000

—

300,000

August 2, 2020^(b)
2026 Unsecured Term Loan

450,000

—

450,000

February 27, 2026

^(a)	The Revolver contains one extension option that would extend the maturity date by five months, to June 21, 2022, subject to certain conditions set forth in the Credit Facility, including payment of an extension fee equal to 0.0625% of the revolving commitments.

^(b)

The 2020 Unsecured Term Loan provides for two options to extend the maturity date of the loan for a six-month period for each extension (for a total possible extension of up to one year), subject to certain conditions, including payment of an extension fee equal to 0.05% of the aggregate principal amount of loan outstanding.

Senior Notes

To mitigate interest rate risk, we have strategically added unsecured, fixed-rate, interest-only senior promissory notes (“Senior Notes”) to our capital structure. ~~At September 30, 2019 and December 31, 2018, we had $475 million of Senior Notes outstanding.~~ The Senior Notes were issued in three series (Series A, B, and C) as described below.

~~Series A Notes~~Operating Expenses

~~On April 18, 2017,~~

	For the three months ended										For the six months ended
	June 30,				Increase/(Decrease)						June 30,				Increase/(Decrease)
(in thousands)	2020		2019		$			%			2020		2019		$			%
Operating expenses
Depreciation and amortization	$	39,921	$	25,287	$	14,634			57.9	%	$	71,140	$	49,597	$	21,543			43.4	%
Asset management fees		—		5,318		(5,318	)		(100.0)	%		2,461		10,438		(7,977	)		(76.4)	%
Property management fees		—		1,935		(1,935	)		(100.0)	%		1,275		3,820		(2,545	)		(66.6)	%
Property and operating expense		4,190		3,252		938			28.8	%		8,305		7,642		663			8.7	%
General and administrative		5,700		1,389		4,311		>100		%		11,542		2,492		9,050		>100		%
Provision for impairment of investment in rental properties		534		—		534		>100		%		2,667		1,017		1,650		>100		%
Total operating expenses	$	50,345	$	37,181	$	13,164			35.4	%	$	97,390	$	75,006	$	22,384			29.8	%

Depreciation and amortization

The increase in depreciation and amortization expense for the three and six months ended June 30, 2020, is primarily due to the growth in our real estate portfolio.

Asset management fees and Property management fees

Prior to the Internalization on February 7, 2020, we ~~issued $150~~paid our third-party manager a quarterly fee equal to 0.25% of the aggregate value of our equity on a fully diluted basis, based on the determined share value established by our board of directors (“Determined Share Value”). Additionally, we paid our third-party manager a monthly fee equal to 3% of gross rentals collected from our real estate portfolio as compensation for its property management services. Upon completion of the Internalization, the agreements with the third-party manager were terminated, resulting in a decrease in these expenses as compared to the prior year period. Our management fees were replaced by compensation and related costs associated with an internalized management structure, and corresponding general and administrative expenses.

General and administrative

Provision for impairment of investment in rental properties

During the three and six months ended June 30, 2020, we recognized $0.5 million and $2.7 million, respectively, 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. 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												For the six months ended
	June 30,						Increase/(Decrease)						June 30,						Increase/(Decrease)
(in thousands)	2020			2019			$			%			2020			2019			$			%
Other income (expenses)
Interest income	$	11		$	—		$	11		>100		%	$	20		$	1		$	19		>100		%
Interest expense		(19,513	)		(16,732	)		2,781			16.6	%		(40,504	)		(32,560	)		7,944			24.4	%
Cost of debt extinguishment		—			(8	)		(8	)		(100.0)	%		(22	)		(721	)		(699	)		(96.9)	%
Gain on sale of real estate		1,046			2,787			(1,741	)		(62.5)	%		8,665			4,187			4,478		>100		%
Income taxes		(402	)		(305	)		97			31.8	%		(951	)		(748	)		203			27.1	%
Internalization expenses		(389	)		(272	)		117			43.0	%		(1,594	)		(272	)		1,322		>100		%
Change in fair value of earnout liability		6,321			—			6,321		>100		%		2,144			—			(2,144	)	>100		%
Other losses		(2	)		—			2		>100		%		(24	)		—			24		>100		%

Interest expense

The increased interest expense during the three and six months ended June 30, 2020, resulted primarily from an increase in average outstanding borrowings as compared to the three and six months ended June 30, 2019, due mainly to borrowings associated with a significant acquisition in the third quarter of 2019, and incremental borrowings associated with the Internalization, partially offset by a 75 basis point decrease in our weighted average cost of debt, inclusive of our interest rate swaps. We were able to take advantage of the decreasing interest rates since June 30, 2019, as our percentage of floating-rate debt increased concurrently with our funding of the aforementioned acquisition. We also amended our 2024 Unsecured Term Loan in July 2019 to reduce the applicable margin from 1.90% to 1.25%.

Gain on sale of real estate

Our recognition of a gain or loss on the sale of real estate varies from transaction to transaction based on fluctuations in asset prices and demand in the real estate market. During the three months ended June 30, 2020, we recognized gains of $1.0 million on the sale of three properties, compared to gains of $2.8 million on the sale of five properties during the three months ended June 30, 2019. During the six months ended June 30, 2020, we recognized gains of $8.7 million on the sale of 13 properties, compared to gains of $4.2 million on the sale of nine properties during the six months ended June 30, 2019.

Internalization expenses

During the three and six months ended June 30, 2020, we incurred $0.4 million and $1.6 million, respectively, of third-party fees and consulting expenses associated with the Internalization that closed on February 7, 2020, compared to $0.3 million of ~~Senior Notes (the “Series A Notes”). The Series A Notes bear interest at a fixed rate~~such expenses in the comparable prior year periods. We expect incremental internalization expenses in the future to be limited to third party legal and accounting fees related to residual work in connection with the transaction.

Change in fair value of ~~4.84% per annum, and mature on April 18, 2027.~~earnout liability

~~Series B and Series C Notes~~

On July 2, 2018, we issued $325 million of Senior Notes in two series: (i) $225 million of 10-year Senior Notes (“Series B Notes”) maturing on July 2, 2028, and (ii) $100 million of 12-year Senior Notes (“Series C Notes”) maturing on July 2, 2030. The Series B and Series C Notes bear interest at fixed rates of 5.09% per annum and 5.19% per annum, respectively.

~~In addition to funding acquisitions, a portion~~As part of the net proceeds from the Series B Notes and Series C Notes was used to repay outstanding borrowings under the Revolver as well as $25 million of the outstanding principal balance of our 2019 Unsecured Term Loan.

~~Debt Covenants~~

We are subject to various covenants and financial reporting requirements pursuant to our loan agreements. The table below summarizes the applicable financial covenants, which are substantially the same across each of the agreements. As of September 30, 2019, we were in compliance with all of our covenants. In the event of default, either through default on payments or breach of covenants,Internalization we may be ~~restricted from paying dividends~~required to pay additional earnout consideration if certain milestones are achieved during the Earnout Periods. We record the fair value of this contingent consideration as an Earnout liability in the Condensed Consolidated Balance Sheets, and update the fair value at the end of each reporting period. We estimate the fair value of the earnout liability by considering weighted-average probabilities of likely outcomes, and using a Monte Carlo simulation and discounted cash flow analysis to estimate fair value. These estimates require the Company to make various assumptions about future share prices, timing of an IPO, and other items that are unobservable and are considered Level 3 inputs in the fair value hierarchy.

Upon closing of the Internalization, we recorded an earnout liability of $40.1 million through our ~~stockholders above~~preliminary purchase price allocation, which decreased to $38.0 million as of June 30, 2020. The decrease in fair value between March 31, 2020 and June 30, 2020 is primarily a result of a decrease in the ~~annual 90% REIT taxable income distribution requirement. For~~estimated net asset value per share assumption used, partially offset by an increase in peer stock price volatility, both of which are attributable to changes in economic circumstances impacting global equity markets, as detailed in Note 2 to the Condensed Consolidated Financial Statements above.

Net Income and Non-GAAP Measures (FFO and AFFO)

Our reported results and net earnings per diluted share are presented in accordance with GAAP. We also disclose FFO and AFFO, each of which are non-GAAP measures. We believe the ~~previous three years, our~~presentation of FFO and AFFO are useful to investors because they are widely accepted industry measures used by analysts and investors to compare the operating performance of REITs. FFO and AFFO should not be considered alternatives to net income as a performance measure or to cash flows from operations, ~~exceeded~~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 ~~required~~standards established by the Board of Governors of Nareit, the worldwide representative voice for REITs and publicly traded real estate companies with an interest in the U.S. real estate and capital markets. Nareit defines FFO as GAAP net income or loss adjusted to exclude net gains (losses) from sales of certain depreciated real estate assets, depreciation and amortization expense from real estate assets, gains and losses from change in control, and impairment charges related to certain previously depreciated real estate assets. To derive AFFO, we modify the Nareit computation of FFO to include other adjustments to GAAP net income related to certain non-cash and non-recurring revenues and expenses, including straight-line rents, cost of debt extinguishments, amortization of lease intangibles, amortization of debt issuance costs, amortization of net mortgage premiums, (gain) loss on interest rate swaps and other non-cash interest expense, realized gains or losses on foreign currency transactions, internalization expenses, extraordinary items, and other specified non-cash items. We believe that such items are not a result of normal operations and thus we believe excluding such items assists management and investors in distinguishing whether changes in our operations are due to growth or decline of operations at our properties or from other factors.

Our leases include cash ~~dividend distribution amounts.~~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 fron t-loading or back-loading of payments, or significant rent-free periods. Therefore, we find it useful to evaluate rent on a contractual basis as it allows for comparison of existing rental rates to market rental rates. In situations where we have granted short-term rent deferrals as a result of the COVID-19 pandemic, and such deferrals are probable of collection and expected to be repaid within a short term, we will continue to recognize the same amount of GAAP lease revenues each period. The amounts temporarily deferred are recorded in tenant receivables until they are repaid. Consistent with GAAP lease revenues, the short-term deferrals associated with COVID-19 will not impact our AFFO.

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

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

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

The following table presents our net income and our non-GAAP FFO and AFFO. 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.

~~Covenants~~	~~Required~~	~~Actual~~ ~~(as of~~ ~~September 30, 2019)~~
~~Leverage Ratio~~^(a)	≤ ~~0.60 to 1.00~~		~~0.52~~
~~Secured Indebtedness Ratio~~^(b)	≤ ~~0.40 to 1.00~~		~~0.03~~
~~Unencumbered Coverage Ratio~~^(c)	≥ ~~1.75 to 1.00~~		~~3.52~~
~~Fixed Charge Coverage Ratio~~^(d)	~~≥ 1.50 to 1.00~~		~~2.84~~
~~Total Unsecured Indebtedness to Total~~ ~~Unencumbered Eligible Property Value~~^(e)	~~≤ 0.60 to 1.00~~		~~0.54~~
~~Dividends and Other Restricted Payments~~	~~Only applicable in case of default~~	~~Not Applicable~~

	For the three months ended										For the six months ended
	June 30,				Increase/(Decrease)						June 30,				Increase/(Decrease)
(in thousands, except per share data)	2020		2019		$			%			2020		2019		$			%
Net income	$	17,098	$	17,342	$	(244	)		(1.4)	%	$	28,946	$	32,364	$	(3,418	)		(10.6)	%
Net earnings per diluted share		0.57		0.70		(0.13	)		(18.6)	%		0.98		1.32		(0.34	)		(25.8)	%
FFO		56,485		39,842		16,643			41.8	%		94,057		78,791		15,266			19.4	%
FFO per diluted share		1.89		1.60		0.29			18.1	%		3.19		3.22		(0.03	)		(0.9)	%
AFFO		46,056		34,637		11,419			33.0	%		87,124		68,806		18,318			26.6	%
AFFO per diluted share		1.54		1.39		0.15			10.8	%		2.96		2.81		0.15			5.3	%
Diluted WASO⁽^a)		29,912		24,941		4,971			19.9	%		29,482		24,507		4,975			20.3	%

^(a)	~~The leverage ratio is calculated as the ratio~~Weighted average number of ~~total indebtedness to total market value.~~

^(b)	~~The secured indebtedness ratio is the ratio~~shares of ~~secured indebtedness to total market value.~~

^(c)	~~The unencumbered coverage ratio is the ratio of unencumbered net operating income (as defined~~our common stock and OP Units outstanding (“WASO”), computed in ~~the agreements) for all eligible properties to unsecured interest expense for the most recent fiscal quarter.~~

^(d)	~~The fixed charge coverage ratio is the ratio of adjusted EBITDA to fixed charges for the most recent fiscal quarter.~~

^(e)	~~The ratio is calculated as the ratio of total unsecured indebtedness to unencumbered property value.~~accordance with GAAP.

~~Capital Strategy~~Net income

~~We believe our leverage policy~~For the three months ended June 30, 2020, compared to the three months ended June 30, 2019, net income decreased primarily due to a $14.6 million increase in depreciation and ~~capital structure provide us~~amortization expense associated with ~~several advantages, including the ability to:~~

~~create~~ a ~~growing and diversified~~larger real estate portfolio, a $2.8 million increase in interest expense associated with ~~a flexible capital structure that allows for independent investing and financing decisions;~~

~~capitalize on competitive debt pricing;~~

~~add value to our stockholders through earnings growth via a growing pool of assets; and~~

issue unsecured debt having relatively limited negative financial covenants and maintain the distributions necessary to retain our REIT status in the event of contractual default, which we believe increases our corporate flexibility.

~~We intend to exercise the extension provisions of our debt instruments, refinance, or replace the existing~~incremental borrowings as they become due, including through additional private debt placements, all with the goal of limiting future debt service to interest payments only. As a result, we do not intend to make principal payments on these debt obligations in the foreseeable future. Additionally, we may be required to increase our borrowing capacityused to partially fund ~~future acquisitions. We assess market conditions~~our real estate acquisitions and the ~~availability~~Internalization, and ~~pricing~~a $1.7 million decrease in gains on sale of ~~debt on an ongoing basis, which are critical inputs in our strategic planning~~real estate. These factors were partially offset by revenue growth of $11.3 million 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 our investors. To the extent that we are unable to recast our debt facilities, our cash flows from operations will not be adequate to pay the principal amount of debt, and we may be forced to liquidate properties to satisfy our obligations.

We believe that the cash generated by our operations and our ongoing private offering, our cash and cash equivalents at September 30, 2019, our current borrowing capacity under our Credit Facility and accordion feature of the 2026 Unsecured Term Loan, 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 real estate to meet our strategic objectives.

~~Impact of~~ ~~Inflation~~

~~The leases in our portfolio are long-term in nature, with a current weighted average remaining lease term of 11.7 years as of September 30, 2019. To mitigate~~ the impact of ~~inflation on~~a $6.3 million adjustment to the fair value of our ~~fixed revenue streams, we have implemented limited rent escalation clauses~~earnout liability in ~~our leases. As~~2020 with no comparable adjustment in the prior year. In addition, as a result of ~~September~~the Internalization, increased general and administrative expenses of $4.3 million were offset by $7.3 million lower asset management and property management fees. For the six months ended June 30, 2020, compared to the six months ended June 30, 2019, ~~substantially all~~net income decreased primarily due to a $21.5 million increase in depreciation and amortization expense, a $7.9 million increase in interest expense, a $1.7 million increase in impairment charges, a $1.3 million increase in internalization expenses, and a $2.1 million adjustment to the fair value of our ~~leases had contractual lease escalations,~~earnout liability in 2020 with ~~an annual weighted average~~no comparable adjustment in the prior year. These factors were partially offset by revenue growth of ~~2.0%. A majority~~$21.1 million and increased gains on sale of ~~our leases have fixed annual rent increases or periodic escalations over~~real estate in the ~~term~~amount of $4.5 million. In addition, as a result of the ~~lease (e.g., a 10% increase every five years),~~Internalization, increased general and ~~the remaining portion has annual lease escalations based~~administrative expenses of $9.1 million were offset by $10.5 million lower asset management and property management fees.

GAAP net income includes items such as gain or loss on ~~increases in the CPI. These lease escalations mitigate the risk~~sale of fixed revenue streams in the case of an inflationary economic environment, and provide increased return in otherwise stable market conditions. As a majority of our portfolio has fixed lease escalations, there is a risk that inflation could be greater than the contractual rent increases.

Our focus on single-tenant, net leases also shelters us from inflationary fluctuations in the cost of services and maintenance. For a portion of our portfolio, we have leases that are not fully triple-net, and, therefore, we bear certain responsibilities for the maintenance and structural component replacements (~~e.g.,~~ ~~roof, structure, or parking lot) that may be required in the future, although the tenants are still required to pay all operating expenses associated with the property (e.g.~~, real estate ~~taxes, insurance,~~ and ~~maintenance). Inflation~~provisions for impairment, among others, which can vary from quarter to quarter and ~~increased costs may have an adverse~~ impact ~~on our tenants and their creditworthiness if~~period-over-period comparisons. These fluctuations, combined with the increase in ~~costs is greater than their increase~~our weighted average shares outstanding, contributed to the $0.13 decrease in ~~revenue. Where we cannot implement~~net earnings per diluted share for the three months ended June 30, 2020 and a ~~triple-net lease, we attempt to limit our exposure to inflation through~~$0.34 decrease in net earnings per diluted share for the ~~use of warranties and other remedies that reduce the likelihood of a significant capital outlay.~~six months ended June 30, 2020.

~~Off-Balance Sheet Arrangements~~AFFO

~~We had no off-balance sheet arrangements as of September 30, 2019, or December 31, 2018.~~

~~Contractual Obligations~~

~~The following table provides information with respect to our contractual commitments and obligations as of September 30, 2019 (dollar amounts in thousands).~~

Year of
Maturity

Term Loans^(a)

Revolver^(b)

Senior
Notes

Mortgages
and Notes
Payable

Interest
Expense^(c)

Tenant
Improvement
Allowances^(d)

Operating
Leases

Total

Remainder of 2019

$
—

$
—

$
—

$
784

$
21,126

$
—

$
29

$
21,939

2020

300,000

—

—

3,210

79,642

3,664

120

386,636

2021

—

—

—

18,028

73,363

—

122

91,513

2022

—

303,300

—

2,930

61,903

—

124

368,257

2023

265,000

—

—

8,356

52,332

—

125

325,813

Thereafter

640,000

—

475,000

79,627

162,190

—

2,540

1,359,357

Total

$
1,205,000

$
303,300

$
475,000

$
112,935

$
450,556

$
3,664

$
3,060

$
2,553,515

^(a)	We may extend the 2020 Unsecured Term Loan twice, each time for a six-month period, subject to certain conditions, including the payment of an extension fee equal to 0.05% of the aggregate principal amount of loans outstanding.

^(b)	~~We may extend the Revolver once, for a five-month period, subject to certain conditions, including the payment of an extension fee equal to 0.0625% of the revolving commitments.~~

^(c)	~~Interest expense is projected based on the outstanding borrowings and interest rates in effect as of September 30, 2019. This amount includes the impact of interest rate swap agreements.~~

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

~~At September 30, 2019, investment in rental property of $179.8 million is pledged as collateral against our mortgages and notes payable.~~

Additionally, as of September 30, 2019, we are a party to three separate Tax Protection Agreements (the “Agreements”) with the contributing members (the “Protected Members”) of three distinct UPREIT transactions. The Agreements require us to pay monetary damages in the event of a sale, exchange, transfer, or other disposal of the contributed property in a taxable transaction that would cause a Protected Member to recognize a Protected Gain, as defined in the Agreements, subject to certain exceptions. Based on values as of September 30, 2019, taxable sales of the applicable properties would trigger liability under the Agreements of approximately $12.3 million. Based on information available, we do not believe that the events resulting in damages as detailed above have occurred or are likely to occur in the foreseeable future. Accordingly, we have excluded these commitments from the contractual commitments table above. For a more detailed discussion of the Agreements, see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Contractual Obligations”, in our Form 10-K.

~~Results of Operations~~

~~Overview~~

As of September 30, 2019, our real estate investment portfolio had grown to a net book value of $3,501.5 million, consisting of investments in 661 commercial real estate properties with locations in 42 U.S. states and one commercial property located in British Columbia, Canada, and leased to tenants in various industries. All but four of our properties were subject to a lease as of September 30, 2019, and substantially all of our leasing activity related to our real estate acquisitions.

~~Lease Revenues~~

For the three months ended

For the nine months ended

September 30,

Increase/(Decrease)

September 30,

Increase/(Decrease)

(in thousands)

2019

2018

$

%

2019

2018

$

%

Lease revenues

$
76,401

$
61,764

$
14,637

23.7
%

$
213,884

$
174,385

$
39,499

22.7
%

The increase in ~~revenues for~~AFFO during the three and ~~nine~~six months ended ~~September~~June 30, ~~2019, is primarily attributable~~2020, as compared to the same periods in 2019, was primarily driven by revenue growth, ~~in our real estate portfolio,~~ which ~~was achieved through~~resulted from rent escalations associated with our same property portfolio, ~~coupled~~accretive acquisitions and strong portfolio operating performance, as well as decreased asset and property management fees as a result of terminating the associated agreements in connection with ~~ren~~the Internalization, discussed above. These factors were partially offset by increased general and administrative expense related to incremental compensation and related costs associated with an internalized management structure, combined with increased interest expense associated with incremental borrowings. We are realizing the cost savings associated with being internally managed. During the first six months of 2020, amounts incurred for general and administrative expenses were approximately $5.1 million less than the combined asset and property management fees that we would have paid under our previous external management structure. Approximately $3.5 million of these savings were realized during the second quarter of 2020, our first full quarter operating under an internally managed structure.

~~tal revenue generated~~The $0.15 increase in AFFO per diluted share during the three and six months ended June 30, 2020, was primarily due to the factors discussed above, partially offset by an increase in BNL’s weighted average shares outstanding resulting from ~~accretive property acquisitions completed since~~continued equity raises associated with our deleveraging plans subsequent to our Industrial Portfolio acquisition in the third quarter of ~~2018,~~2019, combined with the common shares and OP Units issued in conjunction with the Internalization. The cost savings associated with an internalized management structure, combined with continued positive operating performance, more than offset the dilutive effect of the higher share count as compared to the three and six months ended June 30, 2019. We expect this accretion will continue to increase as we grow our portfolio and recognize economies of scale.

Reconciliation of Non-GAAP Measures

The following is a reconciliation of net income to FFO and AFFO, which are non-GAAP financial measures. Also presented are the diluted WASO and per diluted share amounts:

	For the three months ended						For the six months ended
(in thousands, except per share data)	June 30,						June 30,
	2020			2019			2020			2019
Net income	$	17,098		$	17,342		$	28,946		$	32,364
Real property depreciation and amortization		39,899			25,287			71,109			49,597
Gain on sale of real estate		(1,046	)		(2,787	)		(8,665	)		(4,187	)
Provision for impairment on investment in rental properties		534			—			2,667			1,017
FFO	$	56,485		$	39,842		$	94,057		$	78,791
Capital improvements / reserves		—			(48	)		—			(97	)
Straight-line rent adjustment		(6,151	)		(5,240	)		(7,763	)		(10,383	)
Adjustment to provision for credit losses		(110	)		—			(127	)		—
Cost of debt extinguishment		—			8			22			721
Amortization of debt issuance costs		821			597			1,709			1,150
Amortization of net mortgage premiums		(37	)		(36	)		(72	)		(71	)
Gain on interest rate swaps and other non-cash interest expense		(41	)		(41	)		(83	)		(122	)
Amortization of lease intangibles		1,019			(717	)		(119	)		(1,455	)
Internalization expenses		389			272			1,594			272
Severance		—			—			26			—
Change in fair value of earnout liability		(6,321	)		—			(2,144	)		—
Other losses		2			—			24			—
AFFO	$	46,056		$	34,637		$	87,124		$	68,806

Diluted WASO		29,912			24,941			29,482			24,507

Net earnings per share, basic and diluted	$	0.57		$	0.70		$	0.98		$	1.32
FFO per diluted share		1.89			1.60			3.19			3.22
AFFO per diluted share		1.54			1.39			2.96			2.81

Liquidity and Capital Resources

General

We acquire real estate using a combination of debt and equity capital and with cash from operations that is not otherwise distributed to our stockholders. Our focus is on maximizing the risk-adjusted return to our stockholders through an appropriate balance of debt and equity in our capital structure. We are committed to maintaining an investment grade balance sheet through active management of our leverage profile and overall liquidity position. We believe our leverage model has allowed us to take advantage of the lower cost of debt while simultaneously strengthening our balance sheet, as evidenced by our investment grade credit rating of Baa3 from Moody’s Investors Service (“Moody’s”), which Moody’s reaffirmed on July 31, 2020. As of June 30, 2020, our leverage ratio was 45.4% of the approximate market value of our assets, compared to 45.8% as of December 31, 2019.

Liquidity/REIT Requirements

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

Short-term Liquidity Requirements

Our short-term liquidity requirements consist primarily of funds necessary to pay for our operating expenses, including our general and administrative expenses as well as interest payments on our outstanding debt and to pay distributions. Since our portfolio has a strong occupancy level and substantially all of our leases are net leases, we do not currently anticipate making significant capital expenditures or incurring other significant property costs. We expect to meet our short-term liquidity requirements primarily from cash and cash equivalents balances, net cash provided by operating activities, and borrowing under our Revolving Credit Facility. Additionally, on May 5, 2020 we exercised our first of two options, effective August 2, 2020, to extend the maturity date of our $240 million 2020 Unsecured Term Loan for a period of six months in exchange for a fee of $0.1 million. Refer to Recent Developments – COVID-19 Pandemic for additional discussion regarding the pandemic’s impact on our liquidity.

Long-term Liquidity Requirements

Our long-term liquidity requirements consist primarily of funds necessary to repay debt and invest in additional revenue generating properties. Debt capital is provided through unsecured term notes, revolving debt facilities, and senior unsecured notes.

We expect to meet our long-term liquidity requirements primarily from borrowings under our Revolving Credit Facility, future debt and equity financings, and proceeds from limited sales of our properties. Our ability to access these capital sources may be impacted by unfavorable market conditions, particularly in the debt and equity capital markets, that are outside of our control. In addition, our success will depend on our operating performance, our borrowing restrictions, our degree of leverage, and other factors. Our acquisition growth strategy significantly depends on our ability to obtain acquisition financing on favorable terms. We seek to reduce the risk that long-term debt capital may be unavailable to us by strengthening our balance sheet by investing in real estate with creditworthy tenants and lease guarantors, and by maintaining an appropriate mix of debt and equity capitalization. We also, from time to time, obtain or assume non-recourse mortgage financing from banks and insurance companies secured by mortgages on the corresponding specific property. Mortgages, however, are not currently a strategic focus of the active management of our leverage profile. Rather, we enter into mortgages and notes payable as ancillary business transactions on an as-needed basis, most often as the result of lease assumption transactions. Our fiscal strength has enabled us to build a portfolio ~~operating performance. Since~~that is approximately 95% unencumbered on a gross assets basis, with 627 unencumbered properties and approximately $109.3 million of mortgage debt on the ~~third quarter~~remaining properties.

Equity Capital Resources

Equity capital for our real estate acquisition activity has historically been provided from the proceeds of ~~2018,~~our private offering, including distributions reinvested through our DRIP. We suspended our private offering on January 10, 2020, in connection with our confidential submission of a draft registration statement on Form S-11 with the SEC relating to a proposed IPO. Accordingly, we ~~have acquired 109 new properties for $1.2 billion, excluding capitalized acquisition costs, including 66 new properties acquired for $993.7 million~~did not raise any equity through our private offering during the first ~~nine~~six months of ~~2019.~~2020. During the ~~year,~~six months ended June 30, 2020, we ~~experienced greater than 99% rent collection~~raised approximately $5.9 million in equity capital through our DRIP. See Part II, Item 2. “Unregistered Sales of Equity Securities and ~~occupancy (based~~Use of Proceeds” of this Quarterly Report on ~~rentable square footage),~~Form 10-Q for further information. We announced on January 10, 2020 that we were terminating our DRIP, effective February 10, 2020.

Credit Rating

We achieved our current investment grade credit rating of Baa3 based on our conservative leverage profile, diversified real estate investment portfolio, access to capital, and earnings stability provided by the creditworthiness of our tenants. Factors that could negatively impact our credit rating include, but are not limited to: a significant increase in our leverage on a sustained basis, a significant increase in the proportion of secured debt levels, a significant decline in our unencumbered asset base, weakening of our corporate governance structure, and a significant decline in our real estate portfolio diversification or the creditworthiness of our tenants. Factors that could positively impact our credit rating include, but are not limited to, continued growth in the portfolio, improvement in our leverage profile, lengthening of our debt maturity profile, and our Internalization. We have aligned our strategic growth priorities with these factors, as we believe the favorable debt pricing and access to multiple sources of debt capital resulting from our investment grade credit rating, provides us with an advantageous cost of capital and risk-adjusted return on investment for our stockholders.

Existing Credit Facilities

The following table sets forth our outstanding Revolving Credit Facility, unsecured term loans and Senior Notes as of ~~September~~June 30, ~~2019,~~2020.

(in thousands, except interest rates)	Outstanding Balance			Interest Rate	Maturity Date
2020 Unsecured Term Loan	$	240,000		one-month LIBOR + 1.25%	Feb. 2021
Unsecured Revolving Credit and Term Loan Agreement
Revolving Credit Facility		248,300		one-month LIBOR + 1.20%	Jan. 2022
2023 Unsecured Term Loan		265,000		one-month LIBOR + 1.35%	Jan. 2023
2024 Unsecured Term Loan		190,000		one-month LIBOR + 1.25%	Jun. 2024
		703,300
2022 Unsecured Term Loan		60,000		one-month LIBOR + 1.25%	Feb. 2022
2026 Unsecured Term Loan		450,000		one-month LIBOR + 1.85%	Feb. 2026
Senior Notes
Series A		150,000		4.84%	Apr. 2027
Series B		225,000		5.09%	Jul. 2028
Series C		100,000		5.19%	Jul. 2030
		475,000
Total		1,928,300
Debt issuance costs, net		(6,908	)
	$	1,921,392

2020 Unsecured Term Loan

The 2020 Unsecured Term loan had an initial maturity date of August 2020. Borrowings under the ~~weighted average annual rent increases~~2020 Unsecured Term Loan bear interest at variable rates based on LIBOR plus a margin based on our ~~properties~~credit rating ranging between 0.85% and 1.65% per annum. Based on our current credit rating, the applicable margin is 1.25% as of June 30, 2020. The 2020 Unsecured Term Loan allows for two six-month extensions, at our option, subject to our being in compliance with the debt covenants and customary representations and warranties, and payment of a fee equal to 0.05% of the outstanding principal balance at the time of extension. We exercised the first of these options, effective as of August 2, 2020, extending the loan’s maturity to February 2021.

Revolving Credit Facility

2023 Unsecured Term Loan

2024 Unsecured Term Loan

2022 Unsecured Term Loan

On February 7, 2020, we entered into a $60 million term loan agreement maturing in February 2022 with JP Morgan Chase Bank, N.A., as administrative agent. The 2022 Unsecured Term Loan was ~~2.0%.~~used to partially repay BRE debt that we assumed as part of the Internalization. Borrowings under the 2022 Unsecured Term Loan are subject to interest only payments at variable rates equal to LIBOR plus a margin based on our credit rating, ranging between 0.85% and 1.65% per annum. Based on our current credit rating, the applicable margin is 1.25% as of June 30, 2020.

2026 Unsecured Term Loan

The 2026 Unsecured Term Loan includes an accordion feature that provides for an increase in the facility size up to a total of $550 million of available capacity. Borrowings under the 2026 Unsecured Term Loan are payable interest only on a monthly basis during the term of the loan, with the principal amount due in February 2026. Borrowings under the 2026 Unsecured Term loan bear interest equal to LIBOR plus a margin based on our credit rating ranging between 1.45% and 2.40% per annum. Based on our current credit rating, the applicable margin is 1.85% as of June 30, 2020.

Senior Notes

To mitigate interest rate risk, we have strategically added unsecured, fixed-rate, interest-only senior promissory notes (“Senior Notes”) to our capital structure. The Senior Notes were issued in three series (Series A, B, and C) as described below.

Operating Expenses

	For the three months ended										For the nine months ended										For the three months ended										For the six months ended
	September 30,				Increase/(Decrease)						September 30,				Increase/(Decrease)						June 30,				Increase/(Decrease)						June 30,				Increase/(Decrease)
(in thousands)	2019		2018		$			%			2019		2018		$			%			2020		2019		$			%			2020		2019		$			%
Operating expenses
Depreciation and amortization	$	28,392	$	21,869	$	6,523			29.8	%	$	77,989	$	61,303	$	16,686			27.2	%	$	39,921	$	25,287	$	14,634			57.9	%	$	71,140	$	49,597	$	21,543			43.4	%
Asset management fees		5,610		4,663		947			20.3	%		16,048		13,119		2,929			22.3	%		—		5,318		(5,318	)		(100.0)	%		2,461		10,438		(7,977	)		(76.4)	%
Property management fees		2,098		1,680		418			24.9	%		5,918		4,792		1,126			23.5	%		—		1,935		(1,935	)		(100.0)	%		1,275		3,820		(2,545	)		(66.6)	%
Property and operating expense		3,855		2,777		1,078			38.8	%		11,497		7,926		3,571			45.1	%		4,190		3,252		938			28.8	%		8,305		7,642		663			8.7	%
General and administrative		1,315		1,664		(349	)		(21.0	)%		3,807		4,451		(644	)		(14.5	)%		5,700		1,389		4,311		>100		%		11,542		2,492		9,050		>100		%
State, franchise and foreign tax		405		58		347		>100.0		%		1,153		811		342			42.2	%
Provision for impairment of investment in rental properties		2,435		2,061		374			18.1	%		3,452		2,061		1,391			67.5	%		534		—		534		>100		%		2,667		1,017		1,650		>100		%
Total operating expenses	$	44,110	$	34,772	$	9,338			26.9	%	$	119,864	$	94,463	$	25,401			26.9	%	$	50,345	$	37,181	$	13,164			35.4	%	$	97,390	$	75,006	$	22,384			29.8	%

Depreciation and amortization

The increase in ~~Depreciation~~depreciation and amortization expense for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, is primarily due to the growth in our real estate ~~portfolio, as discussed above.~~portfolio.

Asset management fees and Property management fees

~~We pay~~Prior to the ~~Asset Manager~~Internalization on February 7, 2020, we paid our third-party manager a quarterly fee equal to 0.25% of the aggregate value of our equity on a fully diluted basis, based on the determined share value established by our board of directors (“Determined Share ~~Value.~~ Value”). Additionally, we paid our third-party manager a monthly fee equal to 3% of gross rentals collected from our real estate portfolio as compensation for its property management services. Upon completion of the Internalization, the agreements with the third-party manager were terminated, resulting in a decrease in these expenses as compared to the prior year period. Our management fees were replaced by compensation and related costs associated with an internalized management structure, and corresponding general and administrative expenses.

General and administrative

The increase in general and administrative expenses mainly reflects the impact of the Internalization, and our current employment of approximately 73 employees. Following the Internalization, our asset and property management fees were replaced with compensation and related expenses, which totaled $3.8 million and $6.6 million during the three and ~~nine~~six months ended ~~September~~June 30, 2019, is primarily the result of an increase in our total outstanding equity on a fully diluted basis, which resulted from continued equity capital investments. As of September 30, 2019, there were 27.2 million shares of our common stock and non-controlling membership units outstanding, compared to 22.8 million as of September 30, 2018. The increase in equity capital was used to partially fund the continued growth in our real estate portfolio. In addition to the increase in total outstanding equity, the increase in asset management fees reflects higher average Determined Share Values in effect.

~~Property and operating expense~~

The increase in property and operating expense in the three and nine months ended September 30, 2019, is mainly attributable to the number of properties we own for which we are responsible for engaging a third-party property manager to manage ongoing property maintenance,2020, respectively, along with ~~insurance~~associated general and real estate taxes associated with those properties. We pay a majority of these expenses and are reimbursed by the tenant under the terms of the respective leases. There was a corresponding increase in operating expenses billed to tenants and included within Lease revenues.administrative expenses.

Provision for impairment of investment in rental properties

During the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, we recognized ~~$2.4~~$0.5 million and ~~$3.5~~$2.7 million, respectively, 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. The impairments recognized during the nine months ended September 30, 2019, related to 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 a capitalization rate of 14.6%, a weighted average discount rate of 8%,timing and ~~a weighted average price per square foot of $226. During the three and nine months ended September 30, 2018, we recognized $2.1 million~~amount of impairment fluctuates from period to period depending on ~~our investments in rental properties. The impairment related to five 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 7.5% to 10%,~~specific facts and ~~a weighted average discount rate of 8%.~~circumstances.

Other income (expenses)

	For the three months ended												For the nine months ended												For the three months ended												For the six months ended
	September 30,						Increase/(Decrease)						September 30,						Increase/(Decrease)						June 30,						Increase/(Decrease)						June 30,						Increase/(Decrease)
(in thousands)	2019			2018			$			%			2019			2018			$			%			2020			2019			$			%			2020			2019			$			%
Other income (expenses)
Preferred distribution income	$	—		$	65		$	(65	)		(100.0	)%	$	—		$	440		$	(440	)		(100.0	)%
Interest income		5			16			(11	)		(68.8	)%		6			178			(172	)		(96.6	)%	$	11		$	—		$	11		>100		%	$	20		$	1		$	19		>100		%
Interest expense		(18,465	)		(14,484	)		3,981			27.5	%		(51,025	)		(38,115	)		12,910			33.9	%		(19,513	)		(16,732	)		2,781			16.6	%		(40,504	)		(32,560	)		7,944			24.4	%
Cost of debt extinguishment		(455	)		(50	)		405		>100.0		%		(1,176	)		(101	)		1,075		>100.0		%		—			(8	)		(8	)		(100.0)	%		(22	)		(721	)		(699	)		(96.9)	%
Gain on sale of real estate		12,585			2,025			10,560		>100.0		%		16,772			9,620			7,152			74.3	%		1,046			2,787			(1,741	)		(62.5)	%		8,665			4,187			4,478		>100		%
Gain on sale of investment in related party		—			8,500			(8,500	)		(100.0	)%		—			8,500			(8,500	)		(100.0	)%
Income taxes																										(402	)		(305	)		97			31.8	%		(951	)		(748	)		203			27.1	%
Internalization expenses		(923	)		—			(923	)		>100.0	%		(1,195	)		—			(1,195	)		>100.0	%		(389	)		(272	)		117			43.0	%		(1,594	)		(272	)		1,322		>100		%
Change in fair value of earnout liability																										6,321			—			6,321		>100		%		2,144			—			(2,144	)	>100		%
Other losses																										(2	)		—			2		>100		%		(24	)		—			24		>100		%

Interest expense

The increased interest expense during the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, resulted primarily from ~~a $785.9 million~~an increase in average outstanding borrowings ~~from September~~as compared to the three and six months ended June 30, ~~2018, used~~2019, due mainly to borrowings associated with a significant acquisition in the third quarter of 2019, and incremental borrowings associated with the Internalization, partially ~~to fund additional real estate investments. We continue to focus on strengthening~~offset by a 75 basis point decrease in our ~~investment grade balance sheet by more closely aligning~~weighted average cost of debt, ~~maturities and lease terms, accomplished through the refinancing of shorter-term borrowings with longer duration fixed-rate debt. While the benefits~~inclusive of our ~~debt capital markets strategy are partially mitigated by higher-costing instruments, we~~interest rate swaps. We were able to take advantage of the decreasing interest rates ~~during the third quarter of~~since June 30, 2019, as our percentage of floating-rate debt increased concurrently with our funding of the ~~$735.7 million industrial and office portfolio. Our weighted average cost of borrowings, inclusive of interest rate swaps, was 3.94% at September 30,~~aforementioned acquisition. We also amended our 2024 Unsecured Term Loan in July 2019 ~~compared to 4.21% at September 30, 2018. We attempt to limit our total floating-rate debt exposure to no more than 5% of the approximate market value of assets, and expect~~ to reduce ~~our current exposure as we look~~the applicable margin from 1.90% to ~~refinance or replace the short-term borrowings used to finance the acquisition of the industrial and office portfolio.~~

1.25%.

Gain on sale of real estate

Our recognition of a gain or loss on the sale of real estate varies from transaction to transaction based on fluctuations in asset prices and demand in the real estate market. During the three months ended ~~September~~June 30, ~~2019,~~2020, we recognized gains of ~~$12.6~~$1.0 million on the sale of 16three properties, compared to gains of ~~$2.0~~$2.8 million on the sale of ~~four~~five properties during the three months ended ~~September~~June 30, ~~2018.~~2019. During the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, we recognized gains of ~~$16.8~~$8.7 million on the sale of 2513 properties, compared to gains of ~~$9.6~~$4.2 million on the sale of 15nine properties during the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~

~~Gain on sale of investment in related party~~

During the three months ended September 30, 2018, we sold our investment of 100 non-voting convertible preferred units of our Manager, a related party, to another related party of the Manager, for an aggregate sales price of $18.5 million. The preferred units had a carrying value of $10 million at the time of sale, resulting in a gain of $8.5 million. Prior to the sale, we received preferred distribution income on the preferred units.2019.

Internalization expenses

During the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, we incurred ~~$0.9~~$0.4 million and ~~$1.2~~$1.6 million, respectively, of third-party fees and consulting expenses associated with the ~~pending Internalization.~~Internalization that closed on February 7, 2020, compared to $0.3 million of such expenses in the comparable prior year periods. We expect incremental internalization expenses in the future to be limited to third party legal and accounting fees related to residual work in connection with the transaction.

Change in fair value of earnout liability

As part of the Internalization we may be required to pay additional earnout consideration if certain milestones are achieved during the Earnout Periods. We record the fair value of this contingent consideration as an Earnout liability in the Condensed Consolidated Balance Sheets, and update the fair value at the end of each reporting period. We estimate the fair value of the earnout liability by considering weighted-average probabilities of likely outcomes, and using a Monte Carlo simulation and discounted cash flow analysis to estimate fair value. These estimates require the Company to make various assumptions about future share prices, timing of an IPO, and other items that are unobservable and are considered Level 3 inputs in the fair value hierarchy.

Upon closing of the Internalization, we recorded an earnout liability of $40.1 million through our preliminary purchase price allocation, which decreased to $38.0 million as of June 30, 2020. The decrease in fair value between March 31, 2020 and June 30, 2020 is primarily a result of a decrease in the estimated net asset value per share assumption used, partially offset by an increase in peer stock price volatility, both of which are attributable to changes in economic circumstances impacting global equity markets, as detailed in Note 2 to the Condensed Consolidated Financial Statements above.

Net Income and Non-GAAP Measures (FFO and AFFO)

Our reported results and net earnings per diluted share are presented in accordance with GAAP. We also disclose FFO and AFFO, each of which are non-GAAP measures. We believe the presentation of FFO and AFFO are useful to investors because they are widely accepted industry measures used by analysts and investors to compare the operating performance of REITs. FFO and AFFO should not be considered alternatives to net income as a performance measure or to cash flows from operations, as reported on our statement of cash flows, or as a liquidity measure, and should be considered in addition to, and not in lieu of, GAAP financial measures.

We compute FFO in accordance with the standards established by the Board of Governors of Nareit, the worldwide representative voice for REITs and publicly traded real estate companies with an interest in the U.S. real estate and capital markets. Nareit defines FFO as GAAP net income or loss adjusted to exclude net gains (losses) from sales of certain depreciated real estate assets, depreciation and amortization expense from real estate assets, gains and losses from change in control, and impairment charges related to certain previously depreciated real estate assets. To derive AFFO, we modify the Nareit computation of FFO to include other adjustments to GAAP net income related to certain non-cash and non-recurring revenues and expenses, including straight-line rents, cost of debt extinguishments, amortization of lease intangibles, amortization of debt issuance costs, amortization of net mortgage premiums, (gain) loss on interest rate swaps and other non-cash interest expense, realized gains or losses on foreign currency transactions, internalization expenses, extraordinary items, and other specified non-cash items. We believe that such items are not a result of normal operations and thus we believe excluding such items assists management and investors in distinguishing whether changes in our operations are due to growth or decline of operations at our properties or from other factors.

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

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.

The following table presents our net income and our non-GAAP FFO and ~~AFFO for the three and nine months ended September 30, 2019 and 2018.~~AFFO. 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										For the nine months ended										For the three months ended										For the six months ended
	September 30,				Increase/(Decrease)						September 30,				Increase/(Decrease)						June 30,				Increase/(Decrease)						June 30,				Increase/(Decrease)
(in thousands, except per share data)	2019		2018		$			%			2019		2018		$			%			2020		2019		$			%			2020		2019		$			%
Net income	$	25,038	$	23,064	$	1,974			8.6	%	$	57,402	$	60,444	$	(3,042	)		(5.0	)%	$	17,098	$	17,342	$	(244	)		(1.4)	%	$	28,946	$	32,364	$	(3,418	)		(10.6)	%
Net earnings per diluted share		0.95		1.03		(0.08	)		(7.8	)%		2.28		2.81		(0.53	)		(18.9	)%		0.57		0.70		(0.13	)		(18.6)	%		0.98		1.32		(0.34	)		(25.8)	%
FFO		43,280		44,969		(1,689	)		(3.8	)%		122,071		114,188		7,883			6.9	%		56,485		39,842		16,643			41.8	%		94,057		78,791		15,266			19.4	%
FFO per diluted share		1.64		2.02		(0.38	)		(18.8	)%		4.86		5.31		(0.45	)		(8.5	)%		1.89		1.60		0.29			18.1	%		3.19		3.22		(0.03	)		(0.9)	%
AFFO		38,819		31,315		7,504			24.0	%		107,625		91,513		16,112			17.6	%		46,056		34,637		11,419			33.0	%		87,124		68,806		18,318			26.6	%
AFFO per diluted share		1.47		1.40		0.07			5.0	%		4.28		4.26		0.02			0.5	%		1.54		1.39		0.15			10.8	%		2.96		2.81		0.15			5.3	%
Diluted WASO⁽^a)		26,379		22,291		4,088			18.3	%		25,131		21,496		3,635			16.9	%		29,912		24,941		4,971			19.9	%		29,482		24,507		4,975			20.3	%

^(a)	Weighted average number of shares of our common stock and ~~membership units~~OP Units outstanding (“WASO”), computed in accordance with GAAP.

Net income

For the three months ended ~~September~~June 30, 2020, compared to the three months ended June 30, 2019, ~~growth in~~ net income ~~was~~decreased primarily ~~attributable~~due to ~~revenue growth as discussed above, combined with~~ a ~~$10.6 million increase in our gain on sale of real estate. These factors were partially offset by a $6.5~~$14.6 million increase in depreciation and amortization expense associated with a larger real estate portfolio, a ~~$4.0~~$2.8 million increase in interest expense associated with incremental borrowings used to partially fund our real estate acquisitions and ~~$0.9~~the Internalization, and a $1.7 million decrease in gains on sale of real estate. These factors were partially offset by revenue growth of $11.3 million and the impact of a $6.3 million adjustment to the fair value of our earnout liability in 2020 with no comparable adjustment in the prior year. In addition, as a result of the Internalization, increased general and administrative expenses of $4.3 million were offset by $7.3 million lower asset management and property management fees. For the six months ended June 30, 2020, compared to the six months ended June 30, 2019, net income decreased primarily due to a $21.5 million increase in depreciation and amortization expense, a $7.9 million increase in interest expense, a $1.7 million increase in impairment charges, a $1.3 million increase in internalization expenses, ~~incurred~~and a $2.1 million adjustment to the fair value of our earnout liability in ~~2019. We also recognized an $8.5~~2020 with no comparable adjustment in the prior year. These factors were partially offset by revenue growth of $21.1 million ~~gain~~and increased gains on ~~the~~ sale of ~~an investment~~real estate in ~~a related party during 2018, with no such activity in 2019.~~the amount of $4.5 million. In addition, toas a result of the ~~factors driving net income for the three months ended September 30, 2019, the decrease in net income for the nine months ended September 30, 2019, is attributable to a $1.1~~Internalization, increased general and administrative expenses of $9.1 million ~~increase in cost of debt extinguishment primarily associated with our debt refinancing in the first quarter of 2019.~~ were offset by $10.5 million lower asset management and property management fees.

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-to-period~~period-over-period comparisons. ~~The~~These fluctuations, ~~coupled~~combined with the increase in our ~~ongoing equity offering, resulted in a $0.08 and $0.53~~weighted average shares outstanding, contributed to the $0.13 decrease in net earnings per diluted share for the three ~~and nine~~ months ended ~~September~~June 30, ~~2019, respectively.~~2020 and a $0.34 decrease in net earnings per diluted share for the six months ended June 30, 2020.

AFFO

The increase in AFFO during the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, as compared to the same periods in ~~2018,~~2019, was primarily driven by revenue growth, ~~in our real estate investment portfolio. As discussed above, this~~which resulted from rent escalations associated with our same property portfolio, accretive acquisitions ~~made since the third quarter of 2018,~~ and strong portfolio operating ~~performance.~~

performance, as well as decreased asset and property management fees as a result of terminating the associated agreements in connection with the Internalization, discussed above. These factors were partially offset by increased general and administrative expense related to incremental compensation and related costs associated with an internalized management structure, combined with increased interest expense associated with incremental borrowings. We are realizing the cost savings associated with being internally managed. During the first six months of ~~2019,~~2020, amounts incurred for general and administrative expenses were approximately $5.1 million less than the combined asset and property management fees that we would have paid under our ~~per share results~~previous external management structure. Approximately $3.5 million of these savings were negatively impacted by funding a larger portion of our acquisitions with equity and proceeds recycled from property dispositions. We re-balanced our funding mix for the year with the closing of our $735.7 million industrial and office portfolio acquisition on August 29, 2019, and increased our leverage ratio to 47.5% as of September 30, 2019. The accretive nature of our acquisitionsrealized during the ~~year and increase in leverage in the third~~second quarter ~~resulted in a $0.07~~of 2020, our first full quarter operating under an internally managed structure.

The $0.15 increase in AFFO per diluted share during the three and six months ended June 30, 2020, was primarily due to the factors discussed above, partially offset by an increase in BNL’s weighted average shares outstanding resulting from continued equity raises associated with our deleveraging plans subsequent to our Industrial Portfolio acquisition in the third quarter of 2019, combined with the common shares and OP Units issued in conjunction with the Internalization. The cost savings associated with an internalized management structure, combined with continued positive operating performance, more than offset the dilutive effect of the higher share count as compared to the ~~third quarter of 2018.~~three and six months ended June 30, 2019. We expect ~~these factors~~this accretion will continue to ~~contribute to positive fourth quarter results,~~increase as we grow our portfolio and ~~are committed to maintaining an investment grade balance sheet through active management~~recognize economies of ~~our leverage profile and overall liquidity position~~

scale.

Reconciliation of Non-GAAP Measures

The following is a reconciliation of net income to FFO and AFFO, which are non-GAAP financial measures. Also presented ~~is information regarding~~are the diluted WASO and per diluted share amounts:

	For the three months ended						For the six months ended
(in thousands, except per share data)	June 30,						June 30,
	2020			2019			2020			2019
Net income	$	17,098		$	17,342		$	28,946		$	32,364
Real property depreciation and amortization		39,899			25,287			71,109			49,597
Gain on sale of real estate		(1,046	)		(2,787	)		(8,665	)		(4,187	)
Provision for impairment on investment in rental properties		534			—			2,667			1,017
FFO	$	56,485		$	39,842		$	94,057		$	78,791
Capital improvements / reserves		—			(48	)		—			(97	)
Straight-line rent adjustment		(6,151	)		(5,240	)		(7,763	)		(10,383	)
Adjustment to provision for credit losses		(110	)		—			(127	)		—
Cost of debt extinguishment		—			8			22			721
Amortization of debt issuance costs		821			597			1,709			1,150
Amortization of net mortgage premiums		(37	)		(36	)		(72	)		(71	)
Gain on interest rate swaps and other non-cash interest expense		(41	)		(41	)		(83	)		(122	)
Amortization of lease intangibles		1,019			(717	)		(119	)		(1,455	)
Internalization expenses		389			272			1,594			272
Severance		—			—			26			—
Change in fair value of earnout liability		(6,321	)		—			(2,144	)		—
Other losses		2			—			24			—
AFFO	$	46,056		$	34,637		$	87,124		$	68,806

Diluted WASO		29,912			24,941			29,482			24,507

Net earnings per share, basic and diluted	$	0.57		$	0.70		$	0.98		$	1.32
FFO per diluted share		1.89			1.60			3.19			3.22
AFFO per diluted share		1.54			1.39			2.96			2.81

Liquidity and Capital Resources

General

We acquire real estate using a combination of debt and equity capital and with cash from operations that is not otherwise distributed to our stockholders. Our focus is on maximizing the risk-adjusted return to our stockholders through an appropriate balance of debt and equity in our capital structure. We are committed to maintaining an investment grade balance sheet through active management of our leverage profile and overall liquidity position. We believe our leverage model has allowed us to take advantage of the lower cost of debt while simultaneously strengthening our balance sheet, as evidenced by our investment grade credit rating of Baa3 from Moody’s Investors Service (“Moody’s”), which Moody’s reaffirmed on July 31, 2020. As of June 30, 2020, our leverage ratio was 45.4% of the approximate market value of our assets, compared to 45.8% as of December 31, 2019.

Liquidity/REIT Requirements

Short-term Liquidity Requirements

Long-term Liquidity Requirements

Equity Capital Resources

Equity capital for our real estate acquisition activity has historically been provided from the proceeds of our private offering, including distributions reinvested through our DRIP. We suspended our private offering on January 10, 2020, in connection with our confidential submission of a draft registration statement on Form S-11 with the SEC relating to a proposed IPO. Accordingly, we did not raise any equity through our private offering during the first six months of 2020. During the six months ended June 30, 2020, we raised approximately $5.9 million in equity capital through our DRIP. See Part II, Item 2. “Unregistered Sales of Equity Securities and Use of Proceeds” of this Quarterly Report on Form 10-Q for further information. We announced on January 10, 2020 that we were terminating our DRIP, effective February 10, 2020.

Credit Rating

We achieved our current investment grade credit rating of Baa3 based on our conservative leverage profile, diversified real estate investment portfolio, access to capital, and earnings stability provided by the creditworthiness of our tenants. Factors that could negatively impact our credit rating include, but are not limited to: a significant increase in our leverage on a sustained basis, a significant increase in the proportion of secured debt levels, a significant decline in our unencumbered asset base, weakening of our corporate governance structure, and a significant decline in our real estate portfolio diversification or the creditworthiness of our tenants. Factors that could positively impact our credit rating include, but are not limited to, continued growth in the portfolio, improvement in our leverage profile, lengthening of our debt maturity profile, and our Internalization. We have aligned our strategic growth priorities with these factors, as we believe the favorable debt pricing and access to multiple sources of debt capital resulting from our investment grade credit rating, provides us with an advantageous cost of capital and risk-adjusted return on investment for our stockholders.

For the three months ended

For the nine months ended

(in thousands, except per share data)

September 30,

September 30,

2019

2018

2019

2018

Net income

$
25,038

$
23,064

$
57,402

$
60,444

Real property depreciation and amortization

28,392

21,869

77,989

61,303

Gain on sale of real estate

(12,585
)

(2,025
)

(16,772
)

(9,620
)
Provision for impairment on investment in rental properties

2,435

2,061

3,452

2,061

FFO

$
43,280

$
44,969

$
122,071

$
114,188

Capital improvements / reserves

—

(49
)

(97
)

(147
)
Straight-line rent adjustment

(5,499
)

(5,337
)

(15,882
)

(15,640
)
Cost of debt extinguishment

455

50

1,176

101

Gain on sale of investment in related party

—

(8,500
)

—

(8,500
)
Amortization of debt issuance costs

611

477

1,761

1,410

Amortization of net mortgage premiums

(37
)

(36
)

(108
)

(107
)
Gain on interest rate swaps and other non-cash interest expense

(41
)

(4
)

(163
)

(4
)
Amortization of lease intangibles

(873
)

(255
)

(2,328
)

212

Internalization expenses

923

—

1,195

—

AFFO

$
38,819

$
31,315

$
107,625

$
91,513

Diluted WASO

26,379

22,291

25,131

21,496

Net earnings per share, basic and diluted

$
0.95

$
1.03

$
2.28

$
2.81

FFO per diluted share

1.64

2.02

4.86

5.31

AFFO per diluted share

1.47

1.40

4.28

4.26

Existing Credit Facilities

The following table sets forth our outstanding Revolving Credit Facility, unsecured term loans and Senior Notes as of June 30, 2020.

(in thousands, except interest rates)	Outstanding Balance			Interest Rate	Maturity Date
2020 Unsecured Term Loan	$	240,000		one-month LIBOR + 1.25%	Feb. 2021
Unsecured Revolving Credit and Term Loan Agreement
Revolving Credit Facility		248,300		one-month LIBOR + 1.20%	Jan. 2022
2023 Unsecured Term Loan		265,000		one-month LIBOR + 1.35%	Jan. 2023
2024 Unsecured Term Loan		190,000		one-month LIBOR + 1.25%	Jun. 2024
		703,300
2022 Unsecured Term Loan		60,000		one-month LIBOR + 1.25%	Feb. 2022
2026 Unsecured Term Loan		450,000		one-month LIBOR + 1.85%	Feb. 2026
Senior Notes
Series A		150,000		4.84%	Apr. 2027
Series B		225,000		5.09%	Jul. 2028
Series C		100,000		5.19%	Jul. 2030
		475,000
Total		1,928,300
Debt issuance costs, net		(6,908	)
	$	1,921,392

2020 Unsecured Term Loan

The 2020 Unsecured Term loan had an initial maturity date of August 2020. Borrowings under the 2020 Unsecured Term Loan bear interest at variable rates based on LIBOR plus a margin based on our credit rating ranging between 0.85% and 1.65% per annum. Based on our current credit rating, the applicable margin is 1.25% as of June 30, 2020. The 2020 Unsecured Term Loan allows for two six-month extensions, at our option, subject to our being in compliance with the debt covenants and customary representations and warranties, and payment of a fee equal to 0.05% of the outstanding principal balance at the time of extension. We exercised the first of these options, effective as of August 2, 2020, extending the loan’s maturity to February 2021.

Revolving Credit Facility

2023 Unsecured Term Loan

2024 Unsecured Term Loan

2022 Unsecured Term Loan

2026 Unsecured Term Loan

Senior Notes

Series A Notes

The Series A Notes are payable interest only semiannually during their term, bear interest at a fixed rate of 4.84% per annum, and mature on April 18, 2027.

Series B and Series C Notes

The Series B and Series C Notes are payable interest only semiannually during their term, and bear interest at fixed rates of 5.09% per annum and 5.19% per annum, respectively. The Series B Notes mature on July 2, 2028, and the Series C Notes mature on July 2, 2030.

Debt Covenants

We are subject to various covenants and financial reporting requirements pursuant to our debt facilities. The table below summarizes the applicable financial covenants, which are substantially the same across each of our debt facilities. As of June 30, 2020, we believe that we were in compliance with all of our covenants. In the event of default, either through default on payments or breach of covenants, we may be restricted from paying dividends to our stockholders in excess of dividends required to maintain our REIT qualification. For each of the previous three years, we paid dividends out of our cash flows from operations in excess of the distribution amounts required to maintain our REIT qualification. Refer to Recent Developments – COVID-19 Pandemic for additional discussion of the pandemic’s impact on our ability to satisfy our financial covenants.

Covenants	Required	Actual (as of June 30, 2020)
Leverage Ratio^(a)	≤ 0.60 to 1.00		0.52
Secured Indebtedness Ratio^(b)	≤ 0.40 to 1.00		0.03
Unencumbered Coverage Ratio^(c)	≥ 1.75 to 1.00		4.44
Fixed Charge Coverage Ratio^(d)	≥ 1.50 to 1.00		3.23
Total Unsecured Indebtedness to Total Unencumbered Eligible Property Value^(e)	≤ 0.60 to 1.00		0.56
Dividends and Other Restricted Payments	Only applicable in case of default	Not Applicable

^(a)

The leverage ratio is calculated as the ratio of total indebtedness to total market value. For debt covenant purposes, total market value is computed on a consolidated basis 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 acquired in the last four quarters, and the GAAP book value of mortgages receivable, development property, unimproved real estate, unrestricted cash and cash equivalents, and all other tangible assets (the latter subject to a cap of 5% of total market value). For purposes of determining total market value, net operating income from properties disposed of during the immediately preceding period of four consecutive fiscal quarters is excluded.

^(b)	The secured indebtedness ratio is the ratio of secured indebtedness to total market value. Secured indebtedness represents outstanding mortgage borrowings.

^(c)	The unencumbered coverage ratio is the ratio of net operating income for all eligible properties to unsecured interest expense for the most recent fiscal quarter.

^(d)

The fixed charge coverage ratio is the ratio of adjusted EBITDA to fixed charges for the most recent fiscal quarter. Adjusted EBITDA is computed as net income adjusted for depreciation and amortization, interest expense, income tax expense and franchise tax expense, gains and losses from the sale of properties, equity in net income of unconsolidated subsidiaries, non-cash expenses related to mark to market exposure under derivatives contracts, straight-line rent adjustments, amortization of intangibles, gains and losses on early extinguishment of debt, non-cash severance and restructuring charges, transaction costs expensed, and reserves for replacements with respect to certain properties. Fixed charges are computed as interest expense, plus scheduled principal repayments of debt, excluding balloon payments if applicable, plus preferred dividends paid or accrued, if applicable.

^(e)	The ratio is calculated as the ratio of total unsecured indebtedness to unencumbered property value.

Cash Flows

Cash and cash equivalents and restricted cash totaled $9.8 million and $12.7 million at June 30, 2020 and 2019, respectively. The table below shows information concerning cash flows for the six months ended June 30, 2020 and 2019:

	For the six months ended
	June 30,
(In thousands)	2020			2019
Net cash provided by operating activities	$	79,458		$	64,719
Net cash provided by (used in) investing activities		10,738			(120,894	)
Net cash (used in) provided by financing activities		(100,665	)		49,904
Decrease in cash and cash equivalents and restricted cash	$	(10,469	)	$	(6,271	)

The increase in net cash provided by operating activities during the six months ended June 30, 2020 as compared to the six months ended June 30, 2019, was mainly due to growth in our real estate portfolio and cost savings associated with the Internalization.

The change in net cash provided (used in) by investing activities during the six months ended June 30, 2020 as compared to the six months ended June 30, 2019, was mainly due to decreased acquisition volume and increased proceeds from the disposal of properties in 2020, offset by cash paid in connection with the Internalization.

The change in net cash (used in) provided by financing activities during the six months ended June 30, 2020 as compared to the six months ended June 30, 2019, mainly reflects a decrease in proceeds from the issuance of our common stock and increased distributions resulting from an increase in the number of shares of common stock outstanding.

Impact of Inflation

The leases in our portfolio are long-term in nature, with a current ABR weighted average remaining lease term of 11.0 years as of June 30, 2020. Our rental revenues may be impacted by inflation. Substantially all of our leases have contractual lease escalations, with an

ABR weighted average of 2.1% as of June 30, 2020. Many of our leases contain rent escalators that increase rent at a fixed amount and may not be sufficient during periods of high inflation. Leases that contributed approximately 15.7% of our ABR as of June 30, 2020, contained rent escalators based on increases in CPI and the associated increases in rental revenue may be limited during periods of low inflation. The impact of inflation on our property and operating expenses is limited since substantially all of our leases are net leases, and property-level expenses are generally paid by our tenants. To the extent we bear the cost of such expense, 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. Inflation and increased costs may also have an adverse impact to our tenants and their creditworthiness if the increase in property-level expenses is greater than their increase in revenues.

Off-Balance Sheet Arrangements

We had no off-balance sheet arrangements as of June 30, 2020, or December 31, 2019.

Contractual Obligations

The following table provides information with respect to our contractual commitments and obligations as of June 30, 2020 (in thousands).

Year of Maturity	Term Loans^(a)		Revolving Credit Facility^(b)		Senior Notes		Mortgages and Notes Payable		Interest Expense^(c)		Tenant Improvement Allowances^(d)		Operating Leases		Total
Remainder of 2020	$	—	$	—	$	—	$	1,614	$	35,353	$	2,208	$	355	$	39,530
2021		240,000		—		—		18,006		66,288		—		711		325,005
2022		60,000		248,300		—		2,907		59,532		—		686		371,425
2023		265,000		—		—		8,173		54,508		—		505		328,186
2024		190,000		—		—		2,260		50,464		—		120		242,844
Thereafter		450,000		—		475,000		76,912		129,118		—		2,411		1,133,441
Total	$	1,205,000	$	248,300	$	475,000	$	109,872	$	395,263	$	2,208	$	4,788	$	2,440,431

^(a)

The 2020 Unsecured Term Loan had an original maturity date of August 2020, and allows two six-month extensions, at our option, subject to our being in compliance with the debt covenants and customary representations and warranties, and payment of a fee equal to 0.05% of the outstanding principal balance at the time of extension. On May 5, 2020, we exercised the first of these options, effective on August 2, 2020, extending the maturity date of the 2020 Unsecured Term Loan to February 2, 2021. Accordingly, we have included principal repayment of this loan in 2021.

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

^(c)	Interest expense is projected based on the outstanding borrowings and interest rates in effect as of June 30, 2020. This amount includes the impact of interest rate swap agreements.

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

At June 30, 2020 and December 31, 2019, investment in rental property of $175.7 million and $178.7 mil lion, respectively, was pledged as collateral against our mortgages and notes payable.

Additionally, we are a party to three separate tax protection agreements with the contributing members of three distinct UPREIT transactions and we entered into the Founding Owners’ Tax Protection Agreement with our founding owners in connection with the Internalization. The tax protection agreements require us to indemnify the beneficiaries in the event of a sale, exchange, transfer, or other disposal of the contributed property, or in the case of the Founding Owners’ Tax Protection Agreement, the entire Company, in a taxable transaction that would cause such beneficiaries to recognize a gain that is protected under the agreements, subject to certain exceptions. Based on values as of June 30, 2020, taxable sales of the applicable properties would trigger liability under the four agreements of approximately $22.3 million. Based on information available, we do not believe that the events resulting in damages as detailed above have occurred or are likely to occur in the foreseeable future. Accordingly, we have excluded these commitments from the contractual commitments table above.

Critical Accounting Policies

This Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our Condensed Consolidated Financial Statements, which have been prepared in accordance with GAAP. The preparation of ~~our~~these Condensed Consolidated Financial Statements requires management to make estimates and ~~judgments~~assumptions that affect the reported amounts of assets, liabilities, revenues, and ~~expenses. Management bases~~expenses as well as other disclosures in the financial statements. On an ongoing basis, management evaluates its estimates ~~on historical experience~~ and assumptions that we believe 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. Actualassumptions; however, actual results may differ from these estimates ~~under different~~and assumptions, ~~or conditions.~~

~~As discussed~~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 ~~elsewhere~~ in this Quarterly Report on Form 10-Q, during the first quarter of 2019, we adopted the provisions of ASC 842, which resulted in a change to the critical accounting policy with respect to revenue recognition that had been disclosed in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our 2018 Form 10-K.10-Q. We believe there have been no ~~other~~ significant changes during the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, to the items that we disclosed as our critical accounting policies in our ~~2018~~2019 Annual Report on Form 10-K.

Impact of Recent ~~Accounting~~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.

Determined Share Value

Historically, we have sold shares of common stock in a private offering at a price equal to the Determined Share Value (“DSV”), which was established at least quarterly by the board of directors based on the net asset value (“NAV”, or “Private Enterprise NAV”) of our portfolio, input from management and third-party consultants, and such other factors as the board of directors may determine. The DSV was historically used for purchases, distribution reinvestment, and redemptions. On January 10, 2020, we suspended our private offering of our common stock effective immediately and until further notice, and terminated our dividend reinvestment plan (“DRIP”) and share redemption program, each effective as of February 10, 2020.

At its August 4, 2020, meeting, our board of directors voted to retain the determined share value (“DSV”) at $82.00 per share until October 31, 2020. The DSV is established in good faith by the board of directors based upon the net asset value (“NAV”) of our portfolio, input from management and third-party consultants, and such other factors as the board of directors may determine. The Company’s NAV calculation as of June 30, 2020, was calculated using its established valuation process, starting with an estimate of the fair value of the properties in the portfolio as of that date based upon, among other factors, the implied market price for each asset based upon a review of market capitalization rates.

Beginning with the NAV as of June 30, 2020, we revised our calculation to include only the portion of the earnout liability fair value expected to be paid in cash. We also adjusted the number of outstanding shares, including noncontrolling interests, used to compute NAV per diluted share, to include the portion of the earnout liability fair value expected to be paid in common stock and OP units. These adjustments reflect our expectation of how the earnout liability will be settled if earned.

Additional information regarding our valuation policy and procedures, including significant assumptions used to value our real estate portfolio, and the determination of the DSV by the board of directors, is available in Item 5. “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities,” in our 2019 Annual Report on Form 10-K filed with the SEC on February 27, 2020, under the heading Determined Share Value.

Period	NAV as of	Private Enterprise NAV per diluted share		Real Estate NAV per diluted share		Determined Share Value
August 1, 2020 - October 31, 2020	June 30, 2020	$	82.28	$	71.06	$	82.00
May 1, 2020 - July 31, 2020	March 31, 2020		82.46		71.30		82.00
February 1, 2020 - April 30, 2020	December 31, 2019		85.21		85.21		85.00

The adjustments made to NAV per diluted share in arriving at the Determined Share Value for the periods presented above account for the inherent imprecision in the valuation estimates.

The following table provides a breakdown of the major components of our estimated NAV and NAV per diluted share amounts (in thousands, except per share amounts), and a reconciliation of the amounts previously reported as March 31, 2020 NAV, to the current methodology, which is provided for comparative purposes only:

				March 31, 2020
(in thousands, except per share amounts) NAV as of:	June 30, 2020			As Reported			Adjustment for Earnout Shares and OP Units		Current Methodology
Investment in rental property	$	4,338,230		$	4,344,570		$	—	$	4,344,570
Debt		(2,172,559	)		(2,233,159	)		—		(2,233,159	)
Other assets and liabilities, net		(13,430	)		15,344			37,001		52,345
Real Estate NAV		2,152,241			2,126,755					2,163,756
Goodwill		339,769			339,769			—		339,769
Private Enterprise NAV	$	2,492,010		$	2,466,524		$	37,001	$	2,503,525

Number of outstanding shares, including non-controlling interests		29,915			29,912			—		29,912
Earnout shares and OP Units^(a)		373			—			435		435
NAV shares		30,288			29,912			435		30,347

Real Estate NAV per share	$	71.06		N/A					$	71.30
Private Enterprise NAV per share		82.28			82.46		$	0.04		82.50

~~Item 3.~~^(a)

~~Quantitative~~Earnout shares and ~~Qualitative Disclosures About Market Risk~~OP Units were calculated as the portion of the fair value of the earnout liability payable in shares or OP Units as of the appropriate date, divided by $85 per share.

The following table details the implied market capitalization rates (shown on a weighted average basis) used to value the investment in rental property, by property type, as of June 30, 2020, and March 31, 2020, supporting the Determined Share Value in effect for the periods of August 1, 2020 through October 31, 2020, and May 1, 2020, through July 31, 2020, respectively:

Market capitalization rates, as of:

Industrial

Healthcare

Restaurant

Office

Retail

Other

Portfolio

Total

June 30, 2020

6.78

6.75

6.11

7.17

7.14

6.32

6.72

March 31, 2020

6.75

6.73

6.09

7.09

8.02

6.32

6.76

The 0.04% decrease in the portfolio total implied market capitalization rate between March 31, 2020 and June 30, 2020, is primarily the result of our re-leasing certain properties previously subject to bankruptcy proceedings in the retail – home furnishings property type to a creditworthy tenant as of June 30, 2020. Additionally, the ongoing COVID-19 pandemic, together with the restrictions on travel and other measures enacted in response to the pandemic, has had and will continue to have a significant adverse impact on our tenants’ operations and the value of our properties for an unknown period of time. Due to the reliance on historical information when valuing a property and the number of unknown variables with respect to the COVID-19 pandemic at this time, the impact of the pandemic on a particular property will likely not be reflected in a property-level valuation for several calendar quarters. Additionally, when conducting property-level valuations, management and our third-party consultants and appraisers utilize available sales data, such as purchase price, from transactions involving comparable assets. Due to the current economic downturn and significant reduction in real estate transactions in the wake of the pandemic, it is difficult for the Company to obtain or utilize meaningful comparable sales data as part of its valuation process. Management expects this will continue to be the case for several calendar quarters. Accordingly, the current Determined Share Value does not accurately reflect the impact of the COVID-19 pandemic on the value of our shares as of the date of this filing. In estimating the fair value of its real estate assets as of June 30, 2020, the Company considered that the COVID-19 pandemic most significantly impacted tenants leasing properties for casual dining restaurants, retail furniture outlets, and corporate offices, and on a case by case basis, reduced its fair value estimate for certain of these properties as part of the determination of NAV. The board of directors will continue to utilize all available valuation information when setting the DSV in future periods as the impacts of the COVID-19 pandemic on real estate asset values continues to unfold.

Distributions and Distribution Reinvestment

In light of the economic uncertainty and rapidly evolving circumstances related to the COVID-19 pandemic and then-current tenant rent relief requests, to preserve cash, strengthen our liquidity position, and manage our overall leverage profile, in May 2020 our board of directors determined that we would temporarily suspend our monthly distribution. At its August 4, 2020 meeting, the board of directors undertook a full review of our rent collection results for the second quarter of 2020, preliminary collection results for July 2020, our outlook for collections in future months, and our overall liquidity position. Based on our strong collection results and operating performance, the board voted to reinstate a distribution, announcing that the Company would transition to quarterly distribution payments beginning with the quarter ended September 30, 2020. With the continued uncertainty surrounding the COVID-19 pandemic’s long term impact to our tenants, and the recent resurgence in certain geographical hot spots, the board set a $0.54 distribution per common share and OP Unit to stockholders and OP Unit holders of record as of September 30, 2020, payable on or before October 15, 2020. The Company believes this quarter’s distribution is also an incrementally important step towards ensuring the Company satisfies its REIT distribution requirements for the year ended December 31, 2020.

We terminated our DRIP and share redemption program, effective February 10, 2020. Prior to its termination, pursuant to the terms of our DRIP, stockholders and OP Unit holders (other than us) could elect to have cash distributions reinvested in additional shares of our common stock. Shares of our common stock acquired through our DRIP have the same rights and are subject to the same restrictions on transferability as all other shares of our common stock.

The following table summarizes distributions paid in cash and pursuant to our DRIP for the six months ended June 30, 2020 (in thousands).

Month	Year	Cash Distribution − Common Stockholders		Cash Distribution − Membership Units		Distribution Paid Pursuant to DRIP on Common Stock ^(a)		Distribution Paid Pursuant to DRIP on Membership Units ^(a)		Total Amount of Distribution
January	2020	$	5,663	$	632	$	5,734	$	133	$	12,162
February	2020		11,472		764		—		—		12,236
March	2020		11,815		1,345		—		—		13,160
April	2020		11,815		1,345		—		—		13,160
May	2020		11,816		1,345		—		—		13,161
June	2020		–		–		—		—		—
Total		$	52,581	$	5,431	$	5,734	$	133	$	63,879

^(a)	Distributions are paid in shares of common stock.

The following table summarizes our distributions paid, including the source of distributions and a comparison against FFO (in thousands). Refer to Net Income and Non-GAAP Measures (FFO and AFFO) below for further discussion of our FFO.

	For the six months ended
	June 30,
	2020		2019
Distributions:
Paid in cash	$	58,145	$	33,525
Reinvested in shares		5,734		30,008
Total Distributions	$	63,879	$	63,533
Source of Distributions:
Cash flow from operating activities	$	63,879	$	63,533
FFO	$	94,057	$	78,791

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.

Item 3.Quantitative and Qualitative Disclosures About Market Risk

We are exposed to certain market risks, one of the most predominant of which is a change in interest ~~rate risk arising from changes~~rates. Increases in interest rates ~~on the floating-rate borrowings~~can result in increased interest expense under our ~~unsecured credit facilities~~Revolving Credit Facility and a certain mortgage. Borrowings pursuant to our unsecured credit facilities and the floating-rate mortgage bear interest at floating rates based on LIBOR plus an applicable margin. Accordingly, fluctuationsother variable-rate debt. Increases in ~~market~~ interest rates ~~may increase or decrease our~~can also result in increased interest expense ~~which will in turn, increase or decrease~~when our ~~net income~~fixed rate debt matures and ~~cash flow.~~

needs to be refinanced. We attempt to manage ~~a portion of our~~ interest rate risk by entering into ~~interest~~long-term fixed rate ~~swaps. Our interest rate risk management strategy is intended to stabilize cash flow requirements~~debt or by ~~maintaining~~entering into interest rate swaps to convert certain variable-rate debt to a fixed rate. As of September 30, 2019, we had 34 interest rate swaps outstanding, in an aggregate notional amount of $909.9 million. Under these agreements, we receive monthly payments from the counterparties equal to the related variable interest rates multiplied by the outstanding notional amounts. In turn, we pay the counterparties each month an amount equal to a fixed interest rate multiplied by the related outstanding notional amounts. The intended net impact of these transactions is that we pay a fixed interest rate on our variable-rate borrowings. The interest rate swaps have been designated by us as cash flow hedges for accounting purposes and are reported at fair value. We ~~assess, both at inception and on an ongoing basis, the effectiveness of our qualifying cash flow hedges. We~~ have not entered, and do not intend to enter, into derivative or interest rate transactions for speculative purposes. Further information concerning our interest rate swaps can be found in Note 11 in our Condensed Consolidated Financial Statements contained elsewhere in this Quarterly Report on Form 10-Q.

~~The table below summarizes~~Our fixed-rate debt includes our Senior Notes, mortgages, and variable-rate debt converted to a fixed rate with the ~~terms~~use of interest rate swaps. Our fixed-rate debt and outstanding interest rate swaps had carrying values and fair values of approximately $1.6 billion as of June 30, 2020. Changes in market interest rates impact the fair value of our fixed-rate debt and interest rate swaps, but they have no impact on interest incurred or on cash flows. For instance, if interest rates were to increase 1%, and the fixed-rate debt balance were to remain constant, we would expect the fair value of our debt to decrease, similar to how the price of a bond decreases as interest rates rise. A 1% increase in market interest rates would have resulted in a decrease in the fair value of our fixed-rate debt and interest rate swaps of approximately $85.9 million as of June 30, 2020.

Borrowings pursuant to our Revolving Credit Facility and other variable-rate debt bear interest at rates based on LIBOR plus an applicable margin, and totaled $1.5 billion as of June 30, 2020, of which $859.8 million was swapped to a fixed rate by our use of interest rate swaps. Taking into account the effect of our interest rate swaps, ~~at September~~interest expense would have increased by approximately $3.1 million in the six months ended June 30, ~~2019.~~2020, if the applicable LIBOR rate had been 1% higher.

(in thousands, except interest rates)

Counterparty

Maturity Date

Fixed Rate

Variable Rate Index

Notional
Amount

Fair Value

Bank of America, N.A.

November 2023

2.80
%

one-month LIBOR

$
25,000

$
(1,389
)
Bank of Montreal

July 2024

1.16
%

one-month LIBOR

40,000

421

Bank of Montreal

January 2025

1.91
%

one-month LIBOR

25,000

(694
)
Bank of Montreal

July 2025

2.32
%

one-month LIBOR

25,000

(1,333
)
Bank of Montreal

January 2026

1.92
%

one-month LIBOR

25,000

(833
)
Bank of Montreal

January 2026

2.05
%

one-month LIBOR

40,000

(1,643
)
Bank of Montreal

December 2026

2.33
%

one-month LIBOR

10,000

(662
)
Bank of Montreal

December 2026

1.99
%

one-month LIBOR

25,000

(1,058
)
Bank of Montreal

December 2027

2.37
%

one-month LIBOR

25,000

(1,905
)
Bank of Montreal

May 2029

2.09
%

one-month LIBOR

25,000

(1,502
)
Capital One, National Association

December 2021

1.05
%

one-month LIBOR

15,000

133

Capital One, National Association

December 2024

1.58
%

one-month LIBOR

15,000

(165
)
Capital One, National Association

January 2026

2.08
%

one-month LIBOR

35,000

(1,515
)
Capital One, National Association

April 2026

2.68
%

one-month LIBOR

15,000

(1,243
)
Capital One, National Association

July 2026

1.32
%

one-month LIBOR

35,000

118

Capital One, National Association

December 2027

2.37
%

one-month LIBOR

25,000

(1,932
)
M&T Bank

August 2021

1.02
%

one-month LIBOR

4,948

42

M&T Bank

September 2022

2.83
%

one-month LIBOR

25,000

(1,031
)
M&T Bank

November 2023

2.65
%

one-month LIBOR

25,000

(1,284
)
Regions Bank

May 2020

2.12
%

one-month LIBOR

50,000

(104
)
Regions Bank

December 2023

1.18
%

one-month LIBOR

25,000

199

Regions Bank

May 2029

2.11
%

one-month LIBOR

25,000

(1,562
)
Regions Bank

June 2029

2.03
%

one-month LIBOR

25,000

(1,383
)
SunTrust Bank

April 2024

1.99
%

one-month LIBOR

25,000

(745
)
SunTrust Bank

April 2025

2.20
%

one-month LIBOR

25,000

(1,181
)
SunTrust Bank

July 2025

1.99
%

one-month LIBOR

25,000

(934
)
SunTrust Bank

December 2025

2.30
%

one-month LIBOR

25,000

(1,474
)
SunTrust Bank

January 2026

1.93
%

one-month LIBOR

25,000

(915
)
U.S. Bank National Association

June 2029

2.03
%

one-month LIBOR

25,000

(1,395
)
U.S. Bank National Association

August 2029

1.35
%

one-month LIBOR

25,000

207

Wells Fargo Bank, N.A.

February 2021

2.39
%

one-month LIBOR

35,000

(385
)
Wells Fargo Bank, N.A.

October 2024

2.72
%

one-month LIBOR

15,000

(994
)
Wells Fargo Bank, N.A.

April 2027

2.72
%

one-month LIBOR

25,000

(2,427
)
Wells Fargo Bank, N.A.

January 2028

2.37
%

one-month LIBOR

75,000

(5,801
)

$
909,948

$
(36,369
)

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

As of ~~September~~June 30, ~~2019,~~2020, our financial instruments were not exposed to significant market risk due to foreign currency exchange risk.

Item 4.Controls and Procedures

~~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”)),~~ 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~~June 30, ~~2019,~~2020, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective and were operating at a reasonable assurance level.

Changes in Internal Control over Financial Reporting

There ~~were~~have been no changes toin our internal control over financial reporting ~~that occurred~~ during the quarter ended ~~September~~June 30, ~~2019,~~2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II – OTHER INFORMATION

~~Item 1.~~

~~Legal Proceedings.~~

~~From time to time, we~~Item 1.Legal Proceedings.

We are subject to various legal proceedings and claims that arise in the ordinary course of our business. These matters are generally covered by insurance or are subject to our right to be indemnified by our tenants that we include in our leases. Management is 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.~~

~~There have been no material changes from the~~Item 1A. Risk Factors.

The risk factors ~~set forth~~relating to or impacted by the COVID-19 outbreak that were previously disclosed in our Quarterly Report on Form ~~10-K, other than~~10-Q for the ~~following which we have identified as a result of the pending Internalization.~~

~~The pendency of the Internalization could adversely affect our business and operations.~~

Between the date that the Merger Agreement and other documents related to the Internalization were executed and the date that the Internalization is consummated, the attention of our management may be diverted from our day-to-day operations, regardless of whether or not the Internalization is ultimately consummated. The pendency of the Internalization could have an adverse impact on our relationships with other parties, which parties may delay or decline entering into agreements with us as a result of the announcement of our entry into the Merger Agreement. In addition, due to covenants in the Merger Agreement, we may be unable during the pendency of the Internalization to pursue certain transactions or pursue certain other actions that are not in the ordinary course of business, even if such actions would prove beneficial.

There can be no certainty that the Internalization will be consummated and our inability to consummate the Internalization may materially adversely affect our business, financial condition and results of operations.

Consummation of the Internalization is subject to the satisfaction or waiver of a number of conditions. There can be no guarantee that all of these closing conditions will be satisfied or waived and the Internalization consummated. If the Internalization is not consummated, we may be subject to a number of material risks that could materially adversely affect our business, financial condition, and results of operations, including:

●

~~our strategy of simplifying our business and focusing on maximizing long-term stockholder value could be materially delayed; and~~

●

we will have incurred substantial costs and expenses related to the Internalization and the satisfaction or attempted satisfaction of the closing conditions related thereto, including legal, accounting and advisory fees, which will be payable by us even if the Internalization is not consummated.

~~There may be unexpected delays in the consummation of the pending Internalization~~.

The consummation of the Internalization may be delayed by a variety of events, including those that are not within our control. Events that could delay the consummation of the Internalization include delays and difficulties in satisfying any closing conditions to which the Internalization is subject. The Merger Agreement provides that either we or the Manager may terminate the Merger Agreement if the Internalization has not occurred bythree months ended March 31, ~~2020.~~

~~We may not manage the Internalization efficiently and effectively or realize its anticipated benefits.~~

We may not be able to successfully internalize our management in a manner that permits us to realize the anticipated benefits of the Internalization. We may not be able to retain all of the current employees of our Manager that we expect will become our employees as a result of the Internalization. The failure to manage the Internalization efficiently and effectively, including the failure to smoothly transition services or retain employees, could result in the anticipated benefits of the Internalization not being realized in the timeframe currently anticipated or at all.

The Merger Agreement and other agreements entered into in connection with the Internalization were negotiated between a special committee of our Board of Directors composed entirely of independent, disinterested directors (the “Special Committee”) and2020 contained certain ~~of our officers and directors that are affiliated with our Manager,~~financial-related information which ~~may give rise to conflicts of interests.~~

Certain of our officers and directors are affiliated with the Manager, including Ms. Amy L. Tait and Mr. Christopher J. Czarnecki, each of whom serve as a member of the Manager’s four-person board of managers. Accordingly, those officers and directors may receive economic benefits as a result of the Internalization that may differ from, and conflict with, our interests and the interests of our stockholders. The terms and conditions of the agreements entered into in connection with the Internalization, which were negotiated between the Special Committee and our Manager, may not be as favorable to us as if they hadhas been negotiated with unaffiliated third parties. Moreover, the representations, warranties, covenants, and indemnities in the Merger Agreement and the other agreements related to the Internalization are subject to limitations and qualifiers, which may limit our ability to enforce any remedy under such agreements.

The Internalization may not be financially beneficial to us and our stockholders and our net income, funds from operations (“FFO”), and adjusted funds from operations (“AFFO”) may decrease as a result of the Internalization.

There is no assurance that the Internalization will be financially beneficial to us and our stockholders. If the expenses we assume as a result of the Internalization are higher than the fees that we have historically paid to the Manager or otherwise higher than we anticipate, we may not realize the anticipated cost savings and other benefits from the Internalization and our net income, FFO per share and AFFO per share could decrease, which could have a material adverse effect on our business, financial condition, and results of operations.

The Internalization will be a time-consuming and costly process and the expenses arising from the Internalization could exceed our current estimates. Further, transactions involving the internalization by a REIT of an external manager affiliated with the REIT’s sponsor have, in some cases, been the subject of litigation. If such litigation arose in connection with the Internalization, we could be forced to spend significant amounts of money and management resources defending the claims (even if such claims were without merit), which would reduce the amount of funds available for us to invest in properties or other investments or to pay distributions. Additionally, while we will no longer effectively bear the costs of the various fees and currently paid to the Manager following the Internalization, our expenses following the Internalization will include the compensation and benefits of our executive officers and employees, as well as overhead currently paid by the Manager or its affiliates in managing our business and operations. Furthermore, the individuals who we expect will be our employees following the Internalization will be providing us with services historically provided by the Manager. There are no assurances that, following the Internalization, these employees will be able or incentivized to provide services at the same level orupdated for the ~~same costs as are currently provided to us by the Manager. There may also be other unforeseen costs, expenses~~three months ended June 30, 2020 in Part I, Item 2, Management’s Discussion and ~~difficulties associated with operating as an internally managed company.~~

~~The issuance~~Analysis of ~~shares~~Financial Condition and Results of ~~our common stock and units~~Operations of ~~membership interest in the Operating Company in connection with the Internalization would have a dilutive effect~~this Quarterly Report on ~~the voting power and relative ownership interest of our current stockholders~~.

The issuance of shares of our common stock and units of membership interest in the Operating Company in the Internalization will have a dilutive effect on the voting power and relative ownership interest of our current stockholders. In addition, each unit of membership interest in the Operating Company issued in connection with the consummation of the Internalization will be convertible into shares of our common stock, subject to the terms and conditions for such conversions set forth in the limited liability company agreement of the Operating Company. The conversion of such units into shares of our common stock in the future would further dilute the voting power and relative ownership of our current stockholders.

~~Following the consummation of the Internalization, we may be exposed to risks to which we have not historically been exposed.~~

The consummation of the Internalization will expose us to risks to which we have not historically been exposed. Pursuant to the Merger Agreement, we will assume certain potential liabilities relating to the assets of the Manager. These liabilities could have a material adverse effect on our business to the extent we have not identified such liabilities or have not accurately estimated the amount of such liabilities. Our overhead will increase as a result of our becoming internally managed following the Internalization. In addition, following the consummation of the Internalization, we will be subject to the potential liabilities commonly faced by employers, including workers disability and compensation claims, potential labor disputes, and other employee-related liabilities and grievances, and we will bear the costs of the establishment and maintenance of health, retirement, and similar benefit plans for our employees. Finally, there may be other unforeseen costs and expenses associated with operating as an internally managed company.

There is no guarantee that our key employees will remain employed by us for any specified period of time and will not engage in competitive activities if they cease to be employed with or engaged by us.

The execution of employment agreements between us and certain key persons currently employed by the Manager or its affiliate, including Christopher J. Czarnecki, Chief Executive Officer and President; Ryan M. Albano, Chief Financial Officer; John D. Moragne, Chief Operating Officer; and Sean T. Cutt, Chief Investment Officer (the “Senior Employees”), is a condition to the consummation of the Internalization. The employment agreements with each Senior Employee will be structured to incentivize the Senior Employees to remain employed by us, will become effective upon the consummation of the Internalization, and will have a four-year term. However, the departure or the loss of the services of any Senior Employee, or other senior personnel, following the Internalization could have a material adverse effect on our business, financial condition, results of operations and ability to effectively operate our business.

Further, the employment agreements with the Senior Employees will contain restrictions on the activities of such Senior Employees, including restrictions on engaging in activities that are deemed competitive to our business. Although we believe these restrictions to be enforceable under current law, there can be no guarantee that if a Senior Employee were to breach the restrictions and engage in competitive activities, we would be successful in fully enforcing the restrictions. If a Senior Employee were to terminate his or her employment with us and engage in competitive activities, such activities could have a material adverse effect on our business, financial condition and results of operations.Form 10-Q.

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

Sales of Common Stock and Issuance of ~~Membership~~OP Units

We commenced our ~~ongoing~~ private offering of shares of our common stock in 2007. The first closing of our private offering occurred on December 31, 2007, and we ~~have~~ conducted additional closings at least once every calendar quarter ~~since then. During each~~through December 31, 2019. On January 10, 2020, we announced that we suspended until further notice our private offering of ~~the periods covered by this Form 10-Q, we closed sales of additional~~ shares of our common ~~stock on a monthly basis. In November 2017, we instituted an equity cap and queue program for new and additional investments in our common~~ stock. ~~The cap does not apply to investments made pursuant to our DRIP, or to equity capital received in connection with UPREIT transactions. For the months~~

As of ~~February 2019 through~~ June ~~2019, new and additional investments~~30, 2020, there were capped at $20 million per month. On July 3, 2019, we announced that we were removing the equity cap for the month of July 2019 based on our current leverage profile and pipeline of potential acquisitions. There is currently no established equity cap. We anticipate reinstating the equity cap once we are comfortably within the leverage range of our investment grade credit rating. As a result of a pending transaction, we determined that we would not hold an equity closing as of October 31, 2019. The next equity closing will occur on November 29, 2019.

If the total subscriptions for shares of our common stock exceed the cap for a month, subscriptions will generally be accepted at that month’s closing in the order in which they were submitted. In our or the Asset Manager’s discretion, however, certain subscriptions may be given priority over other subscriptions based on factors other than the order of submission, including the size of the subscription, the size of a stockholder’s existing investment, whether the subscription was sourced through an existing or new intermediary relationship, and such other factors we or the Asset Manager may consider. Any subscription for shares that we do not accept at any closing may be held for two subsequent closings and, if so held, shall be treated as a continuing subscription to purchase any remaining shares at the two subsequent closings (and, if applicable, any additional subsequent closings resulting from the subscriber’s exercise of the renewal option discussed below) at the offering price then in effect. If we do not accept and request payment for all of the shares subscribed for at one of the first three closings after receipt of a subscription, the subscriber will have the option to renew its subscription for three additional closings and maintain its position in any equity subscription queue by providing written notice of the subscriber’s election to exercise such option. The same option will be available to the subscriber for each subsequent three-closing period.

~~For the nine months ended September 30, 2019, we sold 3.6~~26.9 million shares of our common stock ~~in our private offering,~~issued and outstanding, including ~~0.6~~0.8 million mezzanine equity common shares, ~~of common stock~~and 3.1 million OP Units issued pursuant to our DRIP, for gross offering proceeds of approximately $307.9 million. We intend to use substantially all of the net proceeds from our private offering, supplemented with additional borrowings, to continue to invest in additional net leased properties, to reduce ourand outstanding, ~~indebtedness, and for general corporate purposes.~~including 1.3 million mezzanine equity non-controlling interests.

The following table provides information regarding the sale of shares of our common stock pursuant to our ongoing private offering during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 (in thousands, except year and Determined Share Value amounts).

Month

Year

Common
Shares
Sold

Weighted
Average
Determined
Share
Value —
Common
Shares^(a)

Total
Proceeds —
Common
Shares
Sold

Common
Shares
DRIP

Weighted
Average
Determined
Share
Value —
DRIP^(b)

Total
Proceeds —
Common
Share
DRIP^(c)

Total
Proceeds

January

2019

233

$
86.00

$
20,000

58

$
84.28

$
4,862

$
24,862

February

2019

235

$
85.00

20,000

58

$
84.28

4,930

24,930

March

2019

235

$
85.00

20,000

62

$
83.30

5,136

25,136

April

2019

235

$
85.00

20,000

63

$
83.30

5,224

25,224

May

2019

233

$
86.00

20,000

64

$
83.30

5,306

25,306

June

2019

233

$
86.00

20,000

63

$
84.28

5,339

25,339

July

2019

990

$
86.00

85,182

64

$
84.28

5,379

90,561

August

2019

466

$
85.00

39,573

64

$
84.28

5,430

45,003

September

2019

186

$
85.00

15,828

68

$
83.30

5,666

21,494

Total

3,046

$
260,583

564

$
47,272

$
307,855

Month

Year

Common

Sold

Weighted

Average

Determined

Value —

Common

Total

Proceeds —

Common

Sold

Common

DRIP

Weighted

Average

Determined

Value —

DRIP^(a)

Total

Proceeds —

Common

DRIP^(b)

Total

Proceeds

January

2020

—

83.30

5,865

^(a)	~~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.~~

^(b)	DRIP shares are purchased at a discounted price of 98% of the Determined Share Value.

^(c)(b)

For common shares reinvested under our DRIP there is no corresponding cash flow from the transaction. Refer to Note 13 to the Condensed Consolidated Financial Statements included in this Quarterly Report on 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 ~~and all of the shares were issued~~ 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~~each of whom represented to us in writing that ~~they~~such person qualified as an “Accredited Investor” as such term is defined by Regulation D promulgated under the Securities Act, and provided us with additional documentation to assist us in verifying such person’s status as an Accredited Investor.

In connection with property acquisitions that are structured as UPREIT transactions, the owner of a property will transfer its interest in the property to the OP in exchange for OP Units. There were no such OP Unit issuances during the six months ended June 30, 2020.

None of the OP Units have been registered under the Securities Act in reliance upon the exemptions from registration under the Securities Act provided by Rule 506(c) under Regulation D promulgated under the Securities Act and Section 4(a)(2) of the Securities Act. All of the OP Units were issued to persons who represented to us in writing that they qualified as an Accredited Investor, and provided us with additional documentation to assist us in verifying such person’s status as an Accredited Investor, including third-party verification as permitted under Regulation D.

Internalization Consideration

In connection with the closing of the Internalization, on February 7, 2020, we issued 780,893 shares of our common stock to certain owners of BRE as merger consideration for an aggregate value of $66.4 million.

In connection with the Internalization, on February 7, 2020, the OP issued 1,319,513 OP Units to certain owners of BRE as merger consideration for an aggregate value of $112.2 million.

In each case, the aforementioned securities were issued in reliance on the exemption set forth in Section 4(a)(2) of the Securities Act.

Repurchases of Equity Securities

~~During the three months ended September 30, 2019, we fulfilled repurchase requests and repurchased~~We had adopted a share redemption program to provide an opportunity for our stockholders to have shares of our common stock ~~pursuant~~repurchased, at the end of each quarter, subject to certain restrictions and limitations, at a price equal to or at a discount from the current Determined Share Value in effect as of the date the shares were tendered for redemption. Cash used to fund share redemptions had historically been provided through a combination of cash generated by operations, the sale of assets, and borrowings. On January 10, 2020, we announced that we terminated our share redemption program, effective as ~~follows.~~of February 10, 2020. Consequently, there were no redemptions of shares of our common stock during the six months ended June 30, 2020.

Item 3.Defaults Upon Senior Securities.

None.

Item 4.Mine Safety Disclosures.

Not applicable.

Item 5.Other Information.

None.

Period

Total Number
of Shares
Requested to be
Redeemed ^(a)

Total Number
of Shares
Redeemed

Average
Price Paid
Per Share ^(b)

Approximate Dollar
Value of Shares
Available That May
Yet Be Redeemed
Under the Program
July 2019

—

—

—

^(c)
August 2019

—

—

—

^(c)
September 2019

88,150

88,150

$
83.51

^(c)

^(a)

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.

^(b)

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.

^(c)

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.~~

The other information presented below is being filed as a result of the Company’s adoption of the new accounting guidance for lease accounting (“ASC 842”) on January 1, 2019. As part of that adoption, the Company elected the available practical expedient, for all classes of assets, not to separate lease components in contracts from the nonlease components in those contracts, when recording revenues associated with operating leases where it is the lessor. Since the lease component is the predominant component under the Company’s leases, combined revenues from both the lease and nonlease components are accounted for in accordance with ASC 842 and will be reported in all periods subsequent to the adoption of the new accounting guidance in a single caption, “Lease revenues,” on the Company’s Consolidated Statements of Income and Comprehensive Income. The presentation and disclosure of Lease revenues have been adjusted to reflect these changes for the three and nine months ended September 30, 2019. Refer to ~~Reclassifications~~ ~~in Note 2 of Part I, Item 1. “Financial Statements,” for further details on these updates to significant accounting policies.~~

This information is intended to assist investors in making comparisons of the Company’s historical financial information with future financial information. The reported financial information below has been revised to conform to the current presentation.

~~This table below summarizes total revenues as originally reported in the Consolidated Statements of Income and Comprehensive Income included in the Company’s 2018 Annual Report on Form 10~~-~~K, as follows (in thousands):~~

~~As originally reported~~

For the years ended December 31,

2018

2017

2016

Revenues

Rental income from operating leases

$
222,208

$
170,493

$
133,943

Earned income from direct financing leases

3,941

4,141

4,544

Operating expenses reimbursed from tenants

11,221

6,721

4,173

Other income from real estate transactions

109

208

209

Total revenues

$
237,479

$
181,563

$
142,869

~~As revised~~

For the years ended December 31,

2018

2017

2016

Revenues

Lease revenues

$
237,479

$
181,563

$
142,869

~~Item 6.~~

Item 6. Exhibits

No.		Description

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

3.2		Second Amended and Restated Bylaws of Broadstone Net Lease, Inc. ~~(Incorporated~~, 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 to Exhibit 3.2 to the Company’s General Form for Registration of Securities on Form 10, filed on April 24, 2017)~~reference)

4.1		~~Broadstone Net Lease, Inc. Distribution Reinvestment Plan (Incorporated herein by reference to~~Description of the Corporation’s Securities (filed as Exhibit 4.1 to the ~~Company’s General Form for Registration of Securities on Form 10, filed on April 24, 2017)~~

~~4.2~~		Broadstone Net Lease, Inc. Share Redemption Program (Incorporated herein by reference to Exhibit 4.2 to the Company’s Amendment No. 2 to the General Form for Registration of Securities on Form 10, filed on June 29, 2017)

10.1*		~~First Amendment to Term Loan Agreement, dated February 27, 2019, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, Capital One, National Association, and the other parties thereto~~

10.2*		Partial Assignment and Assumption of Purchase Agreement, dated July 23, 2019, by and among Broadstone Net Lease, LLC, Broadstone Net Lease, Inc., CF Alpha & Golf Propco LLC, CF Alpha & Golf KS Propco LLC, CF Alpha & Golf MA Propco LLC, and CF Alpha & Golf Property BC ULC

~~10.3~~		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 the other parties thereto ~~(filed as Exhibit 10.1 to the Company’s Current~~Corporation’s Annual Report on Form ~~8-K~~10-K filed ~~July 3, 2019, and incorporated herein by reference)~~

~~10.4~~		Term Loan Agreement, dated August 2, 2019, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, JP Morgan Chase Bank, N.A., BMO Capital Markets Corp., Capital One, National Association, Regions Bank, Regions Capital Markets and the other lenders party thereto (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed August 7, 2019, and incorporated herein by reference)

~~10.5~~		~~Guaranty, dated August 2, 2019, by Broadstone Net Lease, Inc. in favor of JP Morgan Chase Bank, N.A. (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed August 7, 2019,~~February 27, 2020 and incorporated herein by reference)

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

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*†		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*†		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		The following materials from the ~~Company’s~~Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended ~~September~~June 30, ~~2019,~~2020, formatted in 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 and Mezzanine Equity, (iv) Condensed Consolidated Statements of Cash Flows, and (v) Notes to Condensed Consolidated Financial Statements

*	Filed herewith.

†

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

SIGNATURES

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

		BROADSTONE NET LEASE, INC.

Date: ~~November 12, 2019~~August 4, 2020		/s/ Christopher J. Czarnecki
		Christopher J. Czarnecki
		Chief Executive Officer and President

Date: ~~November 12, 2019~~August 4, 2020		/s/ Ryan M. Albano
		Ryan M. Albano
		Executive Vice President and Chief Financial Officer

6156

Percentage of shares owned by	September 30, 2019			December 31, 2018
Corporation		93.6	%		92.7	%
Non-controlling interests		6.4	%		7.3	%
		100.0	%		100.0	%

As originally reported	For the three months ended		For the nine months ended
(in thousands)	September 30, 2018		September 30, 2018
Revenues
Rental income from operating leases	$	58,189	$	163,611
Earned income from direct financing leases		1,017		2,936
Operating expenses reimbursed from tenants		2,529		7,764
Other income from real estate transactions		29		74
Total revenues	$	61,764	$	174,385

As revised	For the three months ended		For the nine months ended
(in thousands)	September 30, 2018		September 30, 2018
Revenues
Lease revenues	$	61,764	$	174,385

	If the Company has completed an IPO		If the Company has not completed an IPO
Earnout Tranche	VWAP of a REIT Share	Applicable Earnout Period	AFFO per Share	Applicable Earnout Period
$10 million	$90.00	The two-year period beginning on the earlier of (i) the IPO closing date or (ii) December 31, 2020.	$5.85	The two-year period consisting of the calendar years ended December 31, 2020 and December 31, 2021.
$15 million	$95.00	The two-year period beginning on the earlier of (i) the IPO closing date or (ii) December 31, 2020.	$5.95	The two-year period consisting of the calendar years ended December 31, 2020 and December 31, 2021.
$25 million	$97.50	The four-year period beginning on the date that is exactly one year after the earnout period begins for the first and second tranches above.	$6.30	The four-year period consisting of the calendar years ended December 31, 2021, December 31, 2022, December 31, 2023 and December 31, 2024.
$25 million	$100.00	The four-year period beginning on the date that is exactly one year after the earnout period begins for the first and second tranches above.	$6.70	The four-year period consisting of the calendar years ended December 31, 2021, December 31, 2022, December 31, 2023 and December 31, 2024.


Earnout Tranche	If BNL has completed an IPO		If BNL has not completed an IPO
Earnout Tranche	VWAP of a REIT Share	Applicable Earnout Period	AFFO per Share	Applicable Earnout Period
$10 million	$90.00	The two-year period beginning on the earlier of (i) the IPO closing date or (ii) December 31, 2020.	$5.85	The two-year period consisting of the calendar years ended December 31, 2020 and December 31, 2021.
$15 million	$95.00	The two-year period beginning on the earlier of (i) the IPO closing date or (ii) December 31, 2020.	$5.95	The two-year period consisting of the calendar years ended December 31, 2020 and December 31, 2021.
$25 million	$97.50	The four-year period beginning on the date that is exactly one year after the earnout period begins for the first and second tranches above.	$6.30	The four-year period consisting of the calendar years ended December 31, 2021, December 31, 2022, December 31, 2023 and December 31, 2024.
$25 million	$100.00	The four-year period beginning on the date that is exactly one year after the earnout period begins for the first and second tranches above.	$6.70	The four-year period consisting of the calendar years ended December 31, 2021, December 31, 2022, December 31, 2023 and December 31, 2024.

Year	Number of Tenants		Number of Properties		Square Footage		NTM Rent		Percentage of NTM Rent
2020		4		3		87	$	629		0.2	%
2021		7		11		99		1,931		0.6	%
2022		5		4		124		3,285		1.1	%
2023		12		13		703		6,975		2.3	%
2024		13		14		1,672		13,737		4.6	%
2025		12		21		693		7,713		2.6	%
2026		22		34		1,521		18,551		6.2	%
2027		22		32		2,006		23,043		7.8	%
2028		24		36		2,715		26,555		8.9	%
2029		16		61		2,481		18,527		6.2	%
2030 and thereafter		110		429		15,322		176,196		59.3	%
Untenanted properties		—		4		51		—		—
Total		247		662		27,474	$	297,142		100.0	%

Tenant	Property Type	% NTM Rent			Properties
Art Van Furniture, LLC	Retail		2.8	%		10
Red Lobster Hospitality & Red Lobster Restaurants LLC	Retail		2.5	%		25
Jack's Family Restaurants LP	Retail		2.0	%		36
Axcelis Technologies, Inc.	Other		1.9	%		1
Hensley & Company	Industrial		1.9	%		3
Outback Steakhouse of Florida LLC ^(a)	Retail		1.9	%		24
Krispy Kreme Doughnut Corporation	Industrial/Retail		1.7	%		27
BluePearl Holdings, LLC	Healthcare		1.7	%		12
Big Tex Trailer Manufacturing, Inc.	Industrial/Retail/Office		1.6	%		17
Siemens Medical Solutions USA, Inc. & Siemens Corporation	Industrial		1.6	%		2
Total Top Ten			19.6	%		157
All Other			80.4	%		505
Total			100.0	%		662

Brand	Property Type	% NTM Rent			Properties
Art Van Furniture	Retail		2.8	%		10
Bob Evans Farms ^(a)	Industrial/Retail		2.6	%		27
Red Lobster	Retail		2.5	%		25
Wendy's	Retail		2.1	%		41
Jack's Family Restaurants	Retail		2.0	%		36
Axcelis	Other		1.9	%		1
Hensley	Industrial		1.9	%		3
Krispy Kreme	Industrial/Retail		1.7	%		27
BluePearl Veterinary Partners	Healthcare		1.7	%		12
Outback Steakhouse	Retail		1.6	%		22
Total Top Ten			20.8	%		204
All Other			79.2	%		458
Total			100.0	%		662

Period	NAV as of	NAV per diluted share		Determined Share Value
November 1, 2019 - January 31, 2020	September 30, 2019	$	84.12	$	85.00
August 1, 2019 - October 31, 2019	June 30, 2019	$	84.68	$	85.00
May 1, 2019 - July 31, 2019	March 31, 2019	$	85.57	$	86.00

NAV component:	September 30, 2019			June 30, 2019
Investment in rental property	$	4,465,457		$	3,704,911
Debt		(2,180,100	)		(1,529,385	)
Other assets and liabilities, net		4,373			(19,078	)
NAV	$	2,289,730		$	2,156,448
Number of outstanding shares, including noncontrolling interests		27,219			25,467
NAV per diluted share	$	84.12		$	84.68

Month	Year	Cash Distribution - Common Stockholders		Cash Distribution - Membership Units		Distribution Paid Pursuant to DRIP on Common Stock ^(a)		Distribution Paid Pursuant to DRIP on Membership Units ^(a)		Total Amount of Distribution
January	2019	$	4,634	$	617	$	4,730	$	130	$	10,111
February	2019		4,691		617		4,800		130		10,238
March	2019		4,836		632		5,003		132		10,603
April	2019		4,879		631		5,092		132		10,734
May	2019		4,917		632		5,176		133		10,858
June	2019		5,017		632		5,207		133		10,989
July	2019		5,108		632		5,247		133		11,120
August	2019		5,178		632		5,291		133		11,234
September	2019		5,401		631		5,532		132		11,696
Total		$	44,661	$	5,656	$	46,078	$	1,188	$	97,583

Loan Tranche	Amount Drawn		Amount Available		Total Capacity		Maturity Date
Credit Facility:
Revolver	$	303,300	$	296,700	$	600,000	January 21, 2022^(a)
2023 Unsecured Term Loan		265,000		—		265,000	January 23, 2023
2024 Unsecured Term Loan		190,000		—		190,000	June 21, 2024
2020 Unsecured Term Loan		300,000		—		300,000	August 2, 2020^(b)
2026 Unsecured Term Loan		450,000		—		450,000	February 27, 2026

Month	Year	Common Shares Sold		Weighted Average Determined Share Value — Common Shares^(a)		Total Proceeds — Common Shares Sold		Common Shares DRIP		Weighted Average Determined Share Value — DRIP^(b)		Total Proceeds — Common Share DRIP^(c)		Total Proceeds
January	2019		233	$	86.00	$	20,000		58	$	84.28	$	4,862	$	24,862
February	2019		235	$	85.00		20,000		58	$	84.28		4,930		24,930
March	2019		235	$	85.00		20,000		62	$	83.30		5,136		25,136
April	2019		235	$	85.00		20,000		63	$	83.30		5,224		25,224
May	2019		233	$	86.00		20,000		64	$	83.30		5,306		25,306
June	2019		233	$	86.00		20,000		63	$	84.28		5,339		25,339
July	2019		990	$	86.00		85,182		64	$	84.28		5,379		90,561
August	2019		466	$	85.00		39,573		64	$	84.28		5,430		45,003
September	2019		186	$	85.00		15,828		68	$	83.30		5,666		21,494
Total			3,046			$	260,583		564			$	47,272	$	307,855

Period	Total Number of Shares Requested to be Redeemed ^(a)		Total Number of Shares Redeemed		Average Price Paid Per Share ^(b)		Approximate Dollar Value of Shares Available That May Yet Be Redeemed Under the Program
July 2019		—		—		—	^(c)
August 2019		—		—		—	^(c)
September 2019		88,150		88,150	$	83.51	^(c)

	For the years ended December 31,
	2018		2017		2016
Revenues
Rental income from operating leases	$	222,208	$	170,493	$	133,943
Earned income from direct financing leases		3,941		4,141		4,544
Operating expenses reimbursed from tenants		11,221		6,721		4,173
Other income from real estate transactions		109		208		209
Total revenues	$	237,479	$	181,563	$	142,869