UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended ~~March 31,~~September 30, 2020, or

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

Commission File Number ~~000-55774~~001-39529

BROADSTONE NET LEASE, INC.

(Exact name of registrant as specified in its charter)

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

800 Clinton Square

Rochester, New York

14604

(Address of principal executive offices)

(Zip Code)

(585) 287-6500

(Registrant’s telephone number, including area code)

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

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

~~None~~Common Stock, $0.00025 par value ¹

BNL

New York Stock Exchange

Class A Common Stock, $0.00025 par value¹

BNL

New York Stock Exchange

¹ Each share of Class A Common Stock will automatically convert to one share of Common Stock on March 20, 2021, the date that is 180 days after the completion of the initial public offering of the Class A Common Stock. The Common Stock will be listed and tradeable on the New York Stock Exchange on March 22, 2021.

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 ~~26,855,508.755~~ 107,786,452shares of the Registrant’s ~~common stock, $0.001~~Common Stock, $0.00025 par value per share, and 37,000,000 shares of the Registrant’s Class A Common Stock, $0.00025 par value per share, outstanding as of ~~May 7,~~November 5, 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) ~~Income~~ (Unaudited)	2
	Condensed Consolidated Statements of Stockholders’ Equity and Mezzanine Equity (Unaudited)	3
	Condensed Consolidated Statements of Cash Flows (Unaudited)	45
	Notes to the Condensed Consolidated Financial Statements (Unaudited)	56
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2832
	Cautionary Note Regarding Forward-Looking Statements	2832
	Explanatory Note and Certain Defined Terms	2932
	Overview	2933
	Recent Developments – ~~COVID-19 Pandemic~~Stock Split and Initial Public Offering	3033
	~~Recent Developments – Internalization~~COVID-19 Pandemic Update	3534
	~~Results of Operations~~Real Estate Portfolio Information	3539
	Results of Operations	45
	Liquidity and Capital Resources	4047
	Cash Flows	4450
	Distributions and Distribution Reinvestment	51
	Impact of Inflation	4552
	Off-Balance Sheet Arrangements	4552
	Contractual Obligations	4552
	~~Critical Accounting Policies~~Non-GAAP Measures	4553
	~~Impact of Recent~~Critical Accounting ~~Pronouncements~~Policies	4656
	~~Determined Share Value~~Impact of Recent Accounting Pronouncements	46
	~~Distributions and Distribution Reinvestment~~	4756
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4856
Item 4.	Controls and Procedures	4957
Part II - OTHER INFORMATION		5058
Item 1.	Legal Proceedings	5058
Item 1A.	Risk Factors	5058
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5258
Item 3.	Defaults upon Senior Securities	5359
Item 4.	Mine Safety Disclosures	5359
Item 5.	Other Information	5359
Item 6.	Exhibits	5460

Part I. ~~FINANCI~~ALFINANCIAL INFORMATION

Item 1. Financial Statements

Broadstone Net Lease, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except per share amounts)

	March 31, 2020			December 31, 2019			September 30, 2020			December 31, 2019
Assets
Accounted for using the operating method, net of accumulated depreciation	$	3,367,566		$	3,415,400		$	3,304,002		$	3,415,400
Accounted for using the direct financing method		39,961			41,890			30,902			41,890
Investment in rental property, net		3,407,527			3,457,290			3,334,904			3,457,290
Cash and cash equivalents		93,151			12,455			101,787			12,455
Accrued rental income		84,932			84,534			97,517			84,534
Tenant and other receivables, net		1,287			934			3,957			934
Prepaid expenses and other assets		12,397			12,613			19,522			12,613
Interest rate swap, assets		—			2,911			0			2,911
Goodwill		339,769			—			339,769			0
Intangible lease assets, net		320,418			331,894			288,971			331,894
Debt issuance costs – unsecured revolving credit facility, net		2,081			2,380			7,027			2,380
Leasing fees, net		12,492			12,847			11,015			12,847
Total assets	$	4,274,054		$	3,917,858		$	4,204,469		$	3,917,858

Liabilities, mezzanine equity and equity
Liabilities and equity
Unsecured revolving credit facility	$	353,300		$	197,300		$	0		$	197,300
Mortgages and notes payable, net		110,464			111,793			108,752			111,793
Unsecured term notes, net		1,672,587			1,672,081			1,433,495			1,672,081
Interest rate swap, liabilities		79,622			24,471			81,326			24,471
Earnout liability		44,296			—			13,177			0
Accounts payable and other liabilities		35,835			37,377			55,339			37,377
Accrued interest payable		9,764			3,594			9,453			3,594
Intangible lease liabilities, net		89,673			92,222			81,220			92,222
Total liabilities		2,395,541			2,138,838			1,782,762			2,138,838

Commitments and contingencies (See Note 16)

Mezzanine equity
Common stock, 781 shares issued and outstanding at March 31, 2020		66,376			—
Non-controlling interests		112,158			—
Total mezzanine equity		178,534			—
Commitments and contingencies (See Note 17)

Equity
Broadstone Net Lease, Inc. stockholders' equity:
Preferred stock, $0.001 par value; 20,000 shares authorized, no shares issued or outstanding		—			—
Common stock, $0.001 par value; 80,000 shares authorized, 26,074 and 26,001 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively		26			26
Preferred stock, $0.001 par value; 20,000 shares authorized, 0 shares issued or outstanding								0			0
Common stock, $0.00025 par value; 440,000 shares authorized, 107,773 shares issued and outstanding at September 30, 2020; 320,000 shares authorized, 104,006 shares issued and outstanding at December 31, 2019								27			26
Class A common stock, $0.00025 par value; 60,000 shares authorized, 33,500 shares issued and outstanding at September 30, 2020; 0 shares authorized, issued or outstanding at December 31, 2019								8			0
Additional paid-in capital		1,899,616			1,895,935			2,506,008			1,895,935
Cumulative distributions in excess of retained earnings		(233,067	)		(208,261	)		(239,520	)		(208,261	)
Accumulated other comprehensive loss		(73,138	)		(20,086	)		(74,729	)		(20,086	)
Total Broadstone Net Lease, Inc. stockholders’ equity		1,593,437			1,667,614			2,191,794			1,667,614
Non-controlling interests		106,542			111,406			229,913			111,406
Total equity		1,699,979			1,779,020			2,421,707			1,779,020
Total liabilities, mezzanine equity and equity	$	4,274,054		$	3,917,858
Total liabilities and equity							$	4,204,469		$	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,
	2020			2019			2020			2019
Revenues
Lease revenues, net	$	80,744		$	76,401		$	239,346		$	213,884

Operating expenses
Depreciation and amortization		31,363			28,392			102,503			77,989
Asset management fees		0			5,610			2,461			16,048
Property management fees		0			2,098			1,275			5,918
Property and operating expense		4,187			3,855			12,492			11,497
General and administrative		7,214			1,315			18,756			3,807
Provision for impairment of investment in rental properties		14,732			2,435			17,399			3,452
Total operating expenses		57,496			43,705			154,886			118,711

Other income (expenses)
Interest income		0			5			20			6
Interest expense		(18,511	)		(18,465	)		(59,015	)		(51,025	)
Cost of debt extinguishment		(392	)		(455	)		(414	)		(1,176	)
Gain on sale of real estate		1,060			12,585			9,725			16,772
Income taxes		(129	)		(405	)		(1,080	)		(1,153	)
Internalization expenses		(1,929	)		(923	)		(3,523	)		(1,195	)
Change in fair value of earnout liability		6,362			0			8,506			0
Other gains (losses)		2			0			(22	)		0
Net income		9,711			25,038			38,657			57,402
Net income attributable to non-controlling interests		(961	)		(1,650	)		(3,738	)		(3,942	)
Net income attributable to Broadstone Net Lease, Inc.	$	8,750		$	23,388		$	34,919		$	53,460

Weighted average number of common shares outstanding
Basic		111,155			98,568			108,228			93,575
Diluted		123,381			105,516			119,747			100,523
Net earnings per share attributable to common stockholders
Basic and diluted	$	0.08		$	0.24		$	0.32		$	0.57
Comprehensive income (loss)
Net income	$	9,711		$	25,038		$	38,657		$	57,402
Other comprehensive income (loss)
Change in fair value of interest rate swaps		4,352			(16,380	)		(59,766	)		(52,182	)
Realized gain on interest rate swaps		(42	)		(41	)		(125	)		(163	)
Comprehensive income (loss)		14,021			8,617			(21,234	)		5,057
Comprehensive (income) loss attributable to non-controlling interests		(1,387	)		(557	)		1,510			(315	)
Comprehensive income (loss) attributable to Broadstone Net Lease, Inc.	$	12,634		$	8,060		$	(19,724	)	$	4,742

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

Broadstone Net Lease, Inc. and Subsidiaries

Condensed Consolidated Statements of ~~Income~~Stockholders’ Equity and ~~Comprehensive (Loss) Income~~Mezzanine Equity

(Unaudited)

(in thousands, except per share amounts)

For the three months ended
March 31,

2020

2019

Revenues

Lease revenues, net

$
78,231

$
68,430

Operating expenses

Depreciation and amortization

31,219

24,310

Asset management fees

2,461

5,120

Property management fees

1,275

1,885

Property and operating expense

4,115

4,390

General and administrative

5,842

1,103

Provision for impairment of investment in rental properties

2,133

1,017

Total operating expenses

47,045

37,825

Other income (expenses)

Interest income

9

1

Interest expense

(20,991
)

(15,828
)
Cost of debt extinguishment

(22
)

(713
)
Gain on sale of real estate

7,619

1,400

Income taxes

(549
)

(443
)
Internalization expenses

(1,205
)

—

Change in fair value of earnout liability

(4,177
)

—

Other losses

(22
)

—

Net income

11,848

15,022

Net income attributable to non-controlling interests

(1,032
)

(1,084
)
Net income attributable to Broadstone Net Lease, Inc.

$
10,816

$
13,938

Weighted average number of common shares outstanding

Basic

26,527

22,335

Diluted

29,053

24,072

Net earnings per common share

Basic and diluted

$
0.41

$
0.62

Comprehensive (loss) income

Net income

$
11,848

$
15,022

Other comprehensive income (loss)

Change in fair value of interest rate swaps

(58,062
)

(12,624
)
Realized gain on interest rate swaps

(42
)

(81
)
Comprehensive (loss) income

(46,256
)

2,317

Comprehensive loss (income) attributable to non-controlling interests

4,020

(167
)
Comprehensive (loss) income attributable to Broadstone Net Lease, Inc.

$
(42,236
)

$
2,150

	Common Stock		Class A Common Stock		Additional Paid-in Capital			Cumulative Distributions in Excess of Retained Earnings			Accumulated Other Comprehensive Loss			Non- controlling Interests			Total Stockholders' Equity			Mezzanine Equity Common Stock			Mezzanine Equity Non- controlling Interests			Total Mezzanine Equity
Balance, January 1, 2020	$	26	$	—	$	1,895,935		$	(208,261	)	$	(20,086	)	$	111,406		$	1,779,020		$	—		$	—		$	—
Cumulative effect of accounting change (see Note 2)		—		—		—			(323	)		—			—			(323	)		—			—			—
Net income		—		—		—			10,816			—			710			11,526			—			322			322
Issuance of 293 shares of common stock and 3,124 shares of mezzanine equity common stock		—		—		6,097			—			—			—			6,097			66,376			—			66,376
Issuance of 5,278 mezzanine non-controlling interests		—		—		—			—			—			—			—			—			112,159			112,159
Adjustment to carrying value of mezzanine equity non-controlling interests		—		—		(2,416	)		—			—			—			(2,416	)		—			2,416			2,416
Distributions declared ($0.11 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 11 shares of common stock		—		—		232			—			—			—			232			—			—			—
Adjustment to carrying value of mezzanine equity non-controlling interests		—		—		(97	)		—			—			—			(97	)		—			97			97
Distributions declared ($0.11 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
Net income		—		—		—			8,750			—			587			9,337			—			374			374
Issuance of 341 shares of common stock		—		—		—			—			—			—			—			—			—			—
Stock-based compensation		—		—		796			—			—			—			796			—			—			��
Issuance of 33,500 shares of Class A common stock		—		8		569,492			—			—			—			569,500			—			—			—
Offering costs, discounts, and commissions		—		—		(37,180	)		—			—			—			(37,180	)		—			—			—
Reclassification of portion of contingent earnout liability		—		—		6,809			—			—			11,627			18,436			—			—			—
Reclassification of 3,124 shares of mezzanine equity common stock to 3,124 shares of common stock		1		—		66,375			—			—			—			66,376			(66,376	)		—			(66,376	)
Reclassification of 5,278 mezzanine equity non-controlling interests to 5,278 non- controlling interests		—		—		—			—			—			112,698			112,698			—			(112,698	)		(112,698	)
Repurchase of 2 fractional shares of common stock		—		—		(35	)		—			—			—			(35	)		—			—			—
Repurchase of fractional OP Units		—		—		—			—			—			(1	)		(1	)		—			—			—
Distributions declared ($0.135 per share for three months ended September 30, 2020)		—		—		—			(18,739	)		—			(1,738	)		(20,477	)		—			—			—
Change in fair value of interest rate swap agreements		—		—		—			—			3,921			264			4,185			—			167			167
Realized gain on interest rate swap agreements		—		—		—			—			(37	)		(3	)		(40	)		—			(2	)		(2	)
Balance, September 30, 2020	$	27	$	8	$	2,506,008		$	(239,520	)	$	(74,729	)	$	229,913		$	2,421,707		$	—		$	—		$	—

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

Broadstone Net Lease, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity and Mezzanine Equity

(Unaudited)

(in thousands, except per share amounts)

	Common Stock		Class A Common Stock		Additional Paid-in Capital			Subscriptions Receivable			Cumulative Distributions in Excess of Retained Earnings			Accumulated Other Comprehensive Income (Loss)			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 3,532 shares of common stock		1		—		75,099			(225	)		—			—			—			74,875			—		—		—
Other offering costs		—		—		(300	)		—			—			—			—			(300	)		—		—		—
Distributions declared ($0.1075 per share January 2019, $0.11 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 85 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 3,567 shares of common stock		1		—		76,004			225			—			—			—			76,230			—		—		—
Other offering costs		—		—		(300	)		—			—			—			—			(300	)		��		—
Distributions declared ($0.11 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 150 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 7,360 shares of common stock		1		—		157,191			—			—			—			—			157,192			—		—		—
Other offering costs		—		—		(703	)		—			—			—			—			(703	)		—		—
Distributions declared ($0.11 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 353 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		$	—	$	—	$	—

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

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 interest

—

(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

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

$
—

$
—

$
—

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

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

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

	For the three months ended March 31,						For the nine months ended September 30,
	2020			2019			2020			2019
Operating activities
Net income	$	11,848		$	15,022		$	38,657		$	57,402
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		30,081			23,572			102,536			75,661
Provision for impairment of investment in rental properties		2,133			1,017			17,399			3,452
Amortization of debt issuance costs charged to interest expense		853			517			2,421			1,655
Stock-based compensation expense								796			—
Straight-line rent and financing lease adjustments		(1,610	)		(5,143	)		(14,696	)		(15,882	)
Cost of debt extinguishment		22			713			414			1,176
Gain on sale of real estate		(7,619	)		(1,400	)		(9,725	)		(16,772	)
Change in fair value of earnout liability		4,177			—			(8,506	)		—
Leasing fees paid		—			(258	)		—			(747	)
Adjustment to provision for credit losses		(17	)		—			(142	)		—
Other non-cash items		194			92			420			277
Changes in assets and liabilities, net of acquisition:
Tenant and other receivables		(353	)		(350	)		(3,023	)		165
Prepaid expenses and other assets		291			(442	)		(4,751	)		(393	)
Accounts payable and other liabilities		(5,851	)		(315	)		5,305			5,234
Accrued interest payable		6,170			(1,386	)		5,859			(295	)
Net cash provided by operating activities		40,319			31,639			132,964			110,933

Investing activities
Acquisition of rental property accounted for using the operating method		—			(75,080	)
Acquisition of rental property accounted for using the operating method, net of mortgages assumed of $0 and $49,782 in 2020 and 2019, respectively								(76	)		(957,820	)
Cash paid for Internalization		(30,861	)		—			(30,861	)		—
Capital expenditures and improvements		(48	)		(256	)		(7,629	)		(4,044	)
Proceeds from disposition of rental property, net		35,383			10,612			54,810			90,137
Increase in tenant and capital reserves		—			(13	)
Change in deposits on investments in rental property		—			100			(37	)		1,500
Net cash provided by (used in) investing activities		4,474			(64,637	)		16,207			(870,227	)

Financing activities
Proceeds from issuance of common stock, net		131			59,869
Proceeds from issuance of common stock and Class A common stock, net of $35,514 offering costs, discounts, and commissions								534,117			260,475
Redemptions of common stock		—			(1,803	)		—			(12,374	)
Cash paid for deferred offering costs		(811	)		—
Borrowings on unsecured term notes		60,000			300,000
Repurchase of fractional shares of common stock								(36	)		—
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			750,000
Principal payments on mortgages, notes payable and unsecured term notes		(151,781	)		(306,970	)		(393,294	)		(316,191	)
Borrowings on unsecured revolving credit facility		167,000			43,800			192,000			389,100
Repayments on unsecured revolving credit facility		(11,000	)		(45,000	)		(389,300	)		(226,900	)
Cash distributions paid to stockholders		(29,148	)		(14,495	)		(52,447	)		(45,219	)
Cash distributions paid to non-controlling interests		(2,681	)		(2,330	)		(5,395	)		(6,980	)
Debt issuance and extinguishment costs paid		(102	)		(5,902	)		(6,140	)		(7,491	)
Net cash provided by financing activities		31,608			27,169
Net increase (decrease) in cash and cash equivalents and restricted cash		76,401			(5,829	)
Net cash (used in) provided by financing activities								(60,495	)		784,420
Net increase in cash and cash equivalents and restricted cash								88,676			25,126
Cash and cash equivalents and restricted cash at beginning of period		20,311			18,989			20,311			18,989
Cash and cash equivalents and restricted cash at end of period	$	96,712		$	13,160		$	108,987		$	44,115

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

Cash and cash equivalents at end of period	$	93,151		$	11,726		$	101,787		$	14,008
Restricted cash at end of period		3,561			1,434			7,200			30,107
Cash and cash equivalents and restricted cash at end of period	$	96,712		$	13,160		$	108,987		$	44,115

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)~~thousands, except per share amounts)

1. Business Description

Broadstone Net Lease, Inc. (the “Corporation”) is a Maryland corporation formed on October 18, 2007, that elected to be taxed as a real estate investment trust (“REIT”) commencing with the taxable year ended December 31, 2008. The Corporation focuses on investing in income-producing, net leased commercial properties, primarily in the United States. The Corporation leases industrial, healthcare, restaurant, office, retail, and other commercial properties under long-term lease agreements. At ~~March 31,~~September 30, 2020, the Corporation owned a diversified portfolio of ~~635~~627 individual commercial properties located in 41 states throughout the continental United States and ~~one~~1 property in British Columbia, Canada.

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

March 31, 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

26,074

1,737

27,811

26,001

1,737

27,738

Mezzanine equity

781

1,320

2,101

—

—

—

Total

26,855

3,057

29,912

26,001

1,737

27,738

Percent Ownership of OP

89.9
%

10.1
%

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 affairs.~~ Prior to February 7, 2020, the Corporation was externally managed by Broadstone Real Estate, LLC (“BRE”) and Broadstone Asset Management, LLC (the “Asset Manager”) subject to the ~~Board of Directors’~~ direction, oversight, and ~~approval.~~approval of the Company’s board of directors (the “Board of Directors”). The Asset Manager was a wholly owned subsidiary of BRE and all of the Corporation’s officers were employees of BRE. Accordingly, both BRE and the Asset Manager were related parties of the Company. Refer to Note 3 for further discussion concerning related parties and related party transactions.

On February 7, 2020, the Corporation, the OP, BRE, and certain of their respective subsidiaries and affiliates, completed through a series of mergers (the “Mergers”) the internalization of the external management functions previously performed for the Corporation and the OP by BRE and the Asset Manager (such transactions, collectively, the “Internalization”). Upon consummation of the Internalization, the Company’s management team and corporate staff, who were previously employed by BRE, became employees of an indirect subsidiary of the OP and the Company became internally managed. Upon Internalization, the prior Property Management Agreement and Asset Management Agreement were terminated. The Internalization was not considered a “Termination Event” under the terms of the agreements and therefore no0 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.

On September 18, 2020, the Corporation effected a 4-for-one split on its then outstanding 26,944 shares of common stock (“Common Stock”) that previously had a $0.001 par value. Concurrent with the stock split, the OP effected a four-for-one stock split of its outstanding OP Units. No fractional shares or OP Units were issued as a result of the stock split. All historic share and per share amounts in these Condensed Consolidated Financial Statements have been adjusted to give retroactive effect to the stock split.

On September 21, 2020, the Corporation closed its initial public offering (“IPO”) at $17.00 per share, of 33,500 shares of a new class of common stock, $0.00025 par value per share (“Class A Common Stock”) pursuant to a registration statement on Form S-11 (File No. 333-240381), as amended, under the Securities Act of 1933, as amended. Shares of the Class A Common Stock are listed on the New York Stock Exchange under the symbol “BNL”.

The terms of the Class A Common Stock are identical to the terms of the Common Stock, except that each share of Class A Common Stock will automatically convert into one share of Common Stock on March 20, 2021. The Common Stock will subsequently be listed on the New York Stock Exchange on March 22, 2021, which represents the first trading day following the 180-day period following the closing of the IPO. The Common Stock and Class A Common Stock are collectively referred to as the Corporation’s “common stock”. See further discussion of the Company’s IPO and stock split in Note 13.

The following table summarizes the outstanding equity and economic ownership interest of the Corporation and the OP:

	September 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
Ownership interest		141,273			12,226			153,499			104,006			6,948			110,954
Percent Ownership of OP		92.0	%		8.0	%		100.0	%		93.7	%		6.3	%		100.0	%

Refer to Note 15 for further discussion regarding the calculation of weighted average shares outstanding.

On October 20, 2020, the Company issued an additional 3,500 shares of Class A Common Stock, pursuant to the underwriters’ partial exercise of their option to acquire up to 5,025 shares of Class A Common Stock at $17.00 per share. See Note 18.

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, 2019, included in the Company’s 2019 Annual Report on Form 10-K, filed with the SEC on 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 Company. All intercompany balances and transactions have been eliminated in consolidation.

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

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

Basis of Accounting

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

Use of Estimates

The preparation of Condensed Consolidated Financial Statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent 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 tangible and intangible assets acquired and liabilities assumed, the value of long-lived assets and goodwill, the provision for impairment, the depreciable lives of rental property, the amortizable lives of intangible assets and liabilities, the provisions for uncollectible rent and credit losses, the fair value of the earnout ~~liabilities,~~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 ~~March 31,~~September 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 ~~17)~~19), certain of the Company’s properties may have fair values less than their carrying amounts. However, based on the Company’s plans with respect to each of those properties, the Company believes that their carrying amounts are recoverable and therefore, under applicable GAAP guidance, no0 impairment charges were recognized other than those described below. If the operating conditions mentioned above deteriorate or if the Company’s expected holding period for assets changes, subsequent tests for impairments could result in additional impairment charges in the future.During the three and nine months ended September 30, 2020, the Company recorded impairment charges associated with three and six properties, respectively. Impairment indicators included changes in the Company’s long-term hold strategy with respect to the individual properties, which was due in part to unfavorable market trends resulting from the COVID-19 pandemic in geographic areas where the Company has vacant properties being marketed for re-lease or sale.

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 months ended ~~March 31,~~September 30, 2020 and 2019, the Company recorded impairment charges of $~~2,133~~14,732 and ~~$1,017,~~$2,435, and $17,399 and $3,452, respectively.

Restricted Cash

Restricted cash includes escrow funds the Company maintains pursuant to the terms of certain mortgages, notes payable, and lease agreements, and undistributed proceeds from the sale of properties under Section 1031 of the Internal Revenue Code of 1986, as amended (the “Code”), and is reported within Prepaid expenses and other assets inon the Condensed Consolidated Balance Sheets.

Restricted cash consisted of the following:

	March 31,		December 31,		September 30,		December 31,
(in thousands)	2020		2019		2020		2019
Escrow funds and other	$	1,504	$	2,311	$	3,815	$	2,311
Undistributed 1031 proceeds		2,057		5,545		3,385		5,545
	$	3,561	$	7,856	$	7,200	$	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 (“CPI”). Lease income associated with such provisions is considered variable lease income and 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.

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.

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

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

Rental property accounted for under operating leases – 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, net to reduce cumulative income recognized since lease commencement to the amount of cash collected from the lessee. Future revenue recognition is limited to amounts paid by the lessee.

Rental property accounted for under direct financing leases – 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 (Loss) ~~Income.~~.

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)

March 31,
2020

December 31,
2019

Rent received in advance

$
9,918

$
13,368

~~Provision for Uncollectible Rent~~

In accordance with ASC 842, provision for uncollectible rent are recorded as an offset to Lease revenues, net on the accompanying Condensed Consolidated Statements of Income and Comprehensive (Loss) Income. The following table summarizes the changes in the provision for uncollectible rent:

~~The following table summarizes the changes in the provision for uncollectible rent:~~

For the three months ended
March 31,

(in thousands)

2020

2019

Beginning balance

$
—

$
2,086

Provision for uncollectible rent

1,033

441

Write-offs

—

(2,527
)
Ending balance

$
1,033

$
—

(in thousands)

September 30,

2020

December 31,

2019

Rent received in advance

11,119

13,368

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 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~~perform its first annual goodwill testing ~~date~~ during the fourth ~~quarter.~~quarter of 2020.

~~Deferred~~ Initial Public Offering Costs

~~The~~Prior to the close of the IPO on September 21, 2020, the Company ~~has~~ incurred and capitalized 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.~~fees in connection with the IPO. The deferred IPO costs ~~will be~~were offset against IPO proceeds, and reclassified as a component of Additional paid-in capital on the Condensed Consolidated Balance Sheets upon the consummation of anthe offering. Should the planned IPO be abandoned, the deferred IPO costs will be expensed immediately as a charge to operating expenses in the Condensed Consolidated Statement of Income and Comprehensive (Loss) Income. At ~~March 31, 2020 and~~ December 31, 2019, deferred IPO costs ~~were $1,282 and~~totaled $668 ~~respectively,~~ and were included within Prepaid expenses and other assets on the Condensed Consolidated Balance Sheets. See Note 13 for further discussion of net proceeds associated with the IPO.

Earnout Liability

The Company’s earnout liability is payable in four tranches, in a combination of cash, common shares, and OP Units, in the same proportion as the initial consideration paid in the Internalization (see Note 4). The common shares and OP Units payable under the arrangement were originally subject to a redemption rights agreement, whereby holders of the common shares and OP Units had the right to require the Company to repurchase any or all of the common shares or OP Units if an IPO had not occurred on or before December 31, 2020 (see discussion of the redemption rights agreement in Note 4). The common shares and OP Units were deemed to be freestanding financial instruments that, at inception, embody an obligation to repurchase the Company’s common shares and OP Units, and therefore were initially classified as liabilities together with the cash portion of the earnout, and recorded in Earnout liability on the Condensed Consolidated Balance Sheets as part of the purchase price allocation. The fair value of the earnout liability is remeasured each reporting period, with changes recorded as Change in fair value of earnout liability in the Condensed Consolidated Statements of Income and Comprehensive Income (Loss).

Upon completion of the IPO, the redemption rights with respect to the common shares and OP Units terminated, and the $18,436 fair value of the 726 shares of common stock and 1,240 OP Units associated with the third and fourth earnout tranches as of the date of the IPO, was reclassified to equity as a component of Additional paid-in capital and Non-controlling interests on the Condensed Consolidated Balance Sheets. At September 30, 2020, the remaining balance in the earnout liability represents $5,207 that is potentially payable in the form of cash associated with all 4 tranches, and $7,970, representing the estimated fair value of 363 shares of common stock and 619 OP Units associated with the first and second earnout tranches, that remain potentially payable based upon the achievement of 2020 adjusted funds from operations (“AFFO”) targets.

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 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 instruments (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”). Under the terms of the agreement, the milestones related to either (a) the 40-day dollar volume-weighted average price of a share of the Company’s common stock (“VWAP per REIT Share”), following the completion of an IPO of the Company’s common stock, or (b) the Company’s ~~adjusted funds from operations (“AFFO”)~~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 ~~future~~ share ~~prices,~~price volatility and, prior to the IPO, about the timing of an IPO and ~~other items that~~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~~Specifically, advancements in the ~~tables below, the Company’s weighted average expected~~estimated IPO date upon close of the Internalization was April 15, 2020. Due to the market dislocation and uncertainty presented by the COVID-19 pandemic, management revised its weighted average expected IPO date as of quarter end to March 15, 2021. The Company anticipates commencing its IPO when market conditions allow, which may be before March 15, 2021. To the extent the expected IPO date advances, there would be a correspondingassumption 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. AnIncreases in the volatility assumption would increase the earnout liability’s fair value. Increases in ~~peer share price volatility~~net asset values would ~~result in an~~also 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.~~September 30, 2020:

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%~~40.0%

~~16.22% to 23.09%~~26.11% - 56.85%

The table below provides a summary of the significant unobservable inputs used to estimate the fair value of the earnout liability as of ~~March 31, 2020.~~February 7, 2020, the transaction date:

Significant Unobservable Inputs	Weighted Average Assumption Used		Range
Expected IPO date	April 15, 2020		March 2020 through May 2020
Peer stock price volatility	20.0%		16.22% to 23.09%
Company's net asset value per diluted share	$	21.30	^(a)

~~Significant Unobservable Inputs~~^(a)	~~Weighted Average Assumption Used~~	~~Range~~
~~Expected IPO~~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	~~March 15, 2021~~	~~November 2020 through May 2021~~
~~Peer stock price volatility~~	~~30.0%~~	~~22.96% to 43.91%~~ was determined using market capitalization rates that ranged between 6.05% and 7.09%.

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

	For the three months ended		For the three months ended			For the nine months ended
(in thousands)	March 31, 2020		September 30, 2020			September 30, 2020
Beginning balance			$	37,975		$	—
Allocation of Internalization purchase price at February 7, 2020	$	40,119		—			40,119
Change in fair value subsequent to Internalization		4,177		(6,362	)		(8,506	)
Balance at March 31, 2020	$	44,296
Reclassification as a component of additional paid-in capital and non-controlling interests				(18,436	)		(18,436	)
Ending balance			$	13,177		$	13,177

The ~~increase~~Company closed its IPO on September 21, 2020, at which time a portion of the liability payable in ~~the earnout liability~~common shares and OP units was reclassified to equity at fair value as a component of Additional paid-in capital and Non-controlling interests, respectively. See further discussion in Earnout Liability in this Note 2.

The decrease in fair value between ~~February 7, 2020~~the Internalization and ~~March 31, 2020 is primarily~~the IPO closing was driven by a ~~result~~lower IPO price, correlating to the net asset value assumption, and the delayed closing of the IPO due to market disruption and uncertainty presented by the COVID-19 pandemic late in the first quarter of 2020. These factors were partially offset by an increase in ~~the~~ peer stock price volatility, ~~assumption used, as detailed above, a direct result of~~which is attributable to changes in economic circumstances impacting global equity markets.

~~Interest Rate Swaps~~ – The balances of ~~interest rate swap~~ assets and liabilities ~~(see Note 11) and earnout liability~~ measured at fair value on a recurring basis are as follows:

	March 31, 2020											September 30, 2020
(in thousands)	Total			Level 1		Level 2			Level 3			Total			Level 1		Level 2			Level 3
Interest rate swap, liabilities	$	(79,622	)	$	—	$	(79,622	)	$	—		$	(81,326	)	$	—	$	(81,326	)	$	—
Earnout liability		(44,296	)		—		—			(44,296	)		(13,177	)		—		—			(13,177	)

	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 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 revolving credit ~~facility:~~facility, which reflects the fair value of interest rate swaps:

(in thousands)

March 31,

2020

December 31,

2019

September 30,

2020

December 31,

2019

Carrying amount

2,144,118

1,989,451

1,549,076

1,989,451

Fair value

2,233,159

2,047,860

1,683,505

2,047,860

~~As disclosed under the~~ ~~Long-lived Asset Impairment~~ ~~section elsewhere in Note 2, the~~Non-recurring Fair Value Measurements

The Company’s non-recurring fair value measurements at ~~March 31,~~September 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

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

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

		March 31,		December 31,			September 30,		December 31,
(in thousands)	Financial Statement Presentation	2020		2019		Financial Statement Presentation	2020		2019
Right-of-use assets	Prepaid expenses and other assets	$	3,457	$	1,614	Prepaid expenses and other assets	$	3,167	$	1,614
Lease liabilities	Accounts payable and other liabilities		3,059		1,209	Accounts payable and other liabilities		2,787		1,209

~~Earnout Liability~~Stock-Based Compensation

~~The Company’s earnout liability is payable in a combination~~On August 4, 2020, the Board of ~~cash, common shares,~~Directors adopted the Broadstone Net Lease, Inc. 2020 Omnibus Equity and ~~OP Units,~~Incentive Plan (the “Equity Incentive Plan”) to provide long-term stock-based incentives to employees and non-employee directors of the Company. Subject to any adjustment as provided in the ~~same proportion as~~Equity Incentive Plan, up to 9,000 shares may be issued pursuant to awards granted under the ~~initial consideration paid~~Equity Incentive Plan in the ~~Internalization (see Note 4)~~form of stock options, restricted stock, restricted stock units, stock appreciation rights, dividend equivalent rights, share awards and performance-based awards (including performance share units and performance-based restricted stock) and LTIP Units (as defined in the Equity Incentive Plan). ~~The~~On August 4, 2020, the Company awarded 341 shares of restricted common ~~shares and OP Units payable~~stock under the ~~arrangement will~~Equity Incentive Plan to certain officers and employees. The Company accounts for stock-based incentives in accordance with ASC 718, Compensation – Stock Compensation, which requires that such compensation be ~~subject to a redemption rights agreement, whereby holders of~~recognized in the ~~common shares and OP Units will have~~financial statements based on the ~~right to require the Company to repurchase any or all of the common shares or OP Units if an IPO has not occurred (see discussion of the redemption rights agreement in Note 4).~~award’s estimated grant date fair value. The common shares and OP Units are deemed to be freestanding financial instruments that, at inception, embody an obligation to repurchase the Company’s common shares and 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~~such awards is recognized as compensation expense in Earnout liability on the Condensed Consolidated Balance Sheets as part of the purchase price allocation. The fair value of the earnout liability is remeasured each reporting period, with changes recorded as Change in fair value of earnout liabilityGeneral and administrative expenses in the Condensed Consolidated Statements of Income and Comprehensive Income (Loss) ~~Income.~~over the appropriate vesting period on a straight-line basis or at the cumulative amount vested at each balance sheet date, if greater. The Company records forfeitures during the period in which they occur by reversing all previously recorded stock compensation expense associated with the forfeited shares. Dividends declared on shares of restricted common stock issued under the

~~Mezzanine~~ Equity

The Company issued common shares and OP Units as base consideration for the Internalization, each of which were subject to a redemption rights agreement, where the common shares (“mezzanine equity common stock”) and OP Units (“mezzanine equity non-controlling interests”) Incentive Plan are economically equivalent to the permanent equity classified common shares and OP Units with the exception of certain contingent redemption rights that are not yet exercisable as of March 31, 2020 (see discussion of redemption rights agreement in Note 4). The Company 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~~Cumulative distribution in excess of ~~Additional paid-in capital~~retained earnings on the Condensed Consolidated Balance Sheets. Accumulated dividends related to forfeited awards will be reversed through compensation expense in the period the forfeiture occurs.

Earnings per Share

Earnings per common share has been computed pursuant to the guidance in FASB ASC Topic 260, Earnings Per Share, which requires the classification of the Company’s unvested shares of restricted common stock, which contain rights to receive non-forfeitable dividends, as participating securities requiring the two-class method of computing earnings per share. The ~~Company subsequently records mezzanine equity non-controlling interests at~~two-class method is an earnings allocation formula that determines earnings per share for each class of common stock and participating securities according to dividends declared (or accumulated) and participation rights in undistributed earnings. In accordance with the ~~greater~~two-class method, the Company’s calculation of ~~(i) carrying amount, increased or decreased for~~earnings per share excludes the ~~non-controlling interest’s share~~income attributable to the unvested shares of ~~net income or loss, dividends~~restricted common stock from the numerator of the calculation and ~~comprehensive income or loss or (ii) redemption value. Changes in carrying value~~the weighted average number of ~~mezzanine equity non-controlling interests are recorded as a component of Additional paid-in capital on~~such unvested shares from the ~~Condensed Consolidated Balance Sheets.~~denominator. See Note 15.

Recently Adopted Accounting Standards

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses which changed how entities measure credit losses for most financial assets. Financial assets that are measured at amortized cost are required to be presented at the net amount expected to be collected with 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,~~losses, including forecasted information. In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments – Credit Losses which clarified that operating lease receivables recorded by lessors are explicitly excluded from the scope of this guidance. ASU 2016-13 and ASU 2018-09 (collectively, “ASC 326”) were effective January 1, 2020, under a modified retrospective application. The new guidance applies to 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 on its financial statements. In connection with the adoption of ASC 326, the Company recorded a provision for credit losses of $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 were effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The Company adopted the new standard on a prospective basis on January 1, 2020. The modifications and new disclosures required by the new standard primarily relate to disclosures ~~around~~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 clarified and improved guidance within the recently issued standards on credit losses, hedging, and recognition and measurement of financial instruments. The Company assessed the impact of the changes to Topic 326 in connection with its adoption of ASU 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 ~~were~~are 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 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 continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.

~~Other Recently Issued Accounting Standards~~

As more fully described in Note 17, during 2020 there have been business disruptions and challenges severely affecting the global economy caused by the COVID-19 pandemic. In response, lessors may be required to provide rent deferrals and other lease concessions to lessees. While the lease modification guidance in ASC 842, ~~Leases~~ addresses routine changes to lease terms resulting from negotiations between the lessee and the lessor, this guidance did not contemplate concessions being so rapidly executed to address the sudden liquidity constraints of some lessees arising from situations such as the COVID-19 pandemic. Under existing lease guidance, the Company would have to determine, on a lease by lease basis, if a lease concession was the result of a new arrangement

reached with the tenant (in which case the modification would be accounted for within the lease modification accounting framework of ASC 842) or if it was covered under the enforceable rights and obligations within the existing lease agreement (in which case the modification would be precluded from applying the lease modification accounting framework). In April 2020, the FASB staff issued a question and answer document (the “Lease Modification Q&A”) that focused on the application of lease accounting guidance to lease concessions provided as a result of 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 ~~if certain criteria have been met,~~ to ~~elect whether or not it will apply the~~make an accounting policy election to account for COVID-19 related lease concessions as either a lease modification ~~accounting framework, with such~~or a negative variable

adjustment to rental revenue. Such election is required to be applied consistently to leases with similar characteristics and similar ~~circumstances, rather than performing an analysis of~~circumstances. Refer to Note 19, COVID-19 Pandemic regarding information on COVID-19 related concessions and the concessions granted on a lease by lease basis. The Company expects to elect to apply such relief and will avail itself of the election to avoid performing a lease by lease analysis. The Lease Modification Q&A has no materialassociated impact on the Company’s ~~consolidated financial statements as~~results of and for the three months ended March 31, 2020. However, its future impact to the Company is dependent upon the extent of lease concessions granted to tenants as a result of the COVID-19 pandemic in future periods and the elections made by the Company at the time of entering into such concessions.operations.

Reclassifications

The Company reclassified ~~$443~~$405 and $1,153 of Income taxes from a component of Operating expenses to a component of Other income (expenses), on the Condensed Consolidated Statements of Income and Comprehensive Income (Loss) ~~Income~~ for the three and nine months ended ~~March 31,~~September 30, 2019, respectively, to conform with the current period presentation. The 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 OP were parties to a property management agreement (as amended, the “Property Management Agreement”) with BRE. Under the terms of the Property Management Agreement, BRE managed and coordinated certain aspects of the leasing of the Corporation’s rental property.

In exchange for services provided under the Property Management Agreement, 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~~1 property, which 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.

Upon completion of the Internalization, the Property Management Agreement was terminated and there will be no0 future property management fees payable to BRE. The Internalization was not considered a ~~“termination event”~~“Termination Event” under the Property Management Agreement, so no0 fees were payable to BRE as a result of the Internalization. See Note 4 for further discussion regarding the Internalization, including the associated payments related thereto.

Asset Management Agreement

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

Under the terms of the Asset Management Agreement, the Asset Manager was 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 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 OP;

(iv)

2% of the gross purchase price paid for each rental property acquired in the event that the acquisition of a rental property 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, as defined in the Asset Management Agreement.

Upon completion of the Internalization, the Asset Management Agreement was terminated and there will be no0 future asset management fees payable to the Asset Manager. The Internalization was not considered a ~~“termination event”~~“Termination Event” under the Asset Management Agreement, so no0 fees were payable to the Asset Manager as a result of the Internalization. See Note 4 for further discussion regarding the Internalization, including the associated payments related thereto.

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

(in thousands)		For the three months ended March 31,					For the three months ended September 30,				For the nine months ended September 30,
Type of Fee	Financial Statement Presentation	2020^(a)		2019		Financial Statement Presentation	2020^(a)		2019		2020^(a)		2019
Asset management fee	Asset management fees	$	2,461	$	5,120	Asset management fees	$	—	$	5,610	$	2,461	$	16,048
Property management fee	Property management fees		1,275		1,885	Property management fees		—		2,098		1,275		5,918
Total management fee expense			3,736		7,005			—		7,708		3,736		21,966

Marketing fee (offering costs)	Additional paid-in capital		—		300	Additional paid-in capital		—		703		—		1,303
Acquisition fee	Capitalized as a component of assets acquired		—		730	Capitalized as a component of assets acquired		—		7,932		—		9,937
Leasing fee and re-leasing fees	Leasing fees, net		—		258	Leasing fees, net		—		312		—		747
Disposition fee	Gain on sale of real estate		109		113	Gain on sale of real estate		—		596		109		947
Total management fees		$	3,845	$	8,406		$	—	$	17,251	$	3,845	$	34,900

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

There were no0 unpaid management fees at ~~March 31,~~September 30, 2020 and December 31, 2019. All fees related to the Property Management Agreement and the Asset Management Agreement 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~~obligation that would be payable to certain members of the Company’s Board of Directors and employees who had previously been owners and/or employees of BRE, upon the occurrence of certain events (see Note 4). The fair value of the earnout consideration amounted to $31,613 at September 30, 2020, of which $13,177 is recorded as Earnout liability, ~~was $44,296~~$6,809 is recorded as a component of ~~March 31, 2020.~~Additional paid-in capital, and $11,627 is recorded as a component of Non-controlling interests on the Condensed Consolidated Balance Sheets (see Note 2).

Related Party Lease

In connection with the Internalization, the Company assumed the lease agreement relating to ~~the Company’s~~its 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 ~~is scheduled to expire~~expires on August 31, 2023, ~~with two~~ and contains 2 five-year renewal options. The annual rent for 2020 is approximately $547, with 2% annual increases thereafter. See further discussion in Note ~~16.~~17.

4. Internalization

On February 7, 2020, the Company completed the Internalization and the Company’s management team and corporate staff, who were previously employed by BRE, became employees of an indirect subsidiary of the OP. The Company paid base consideration of $209,516 at closing and may be required to pay additional earnout consideration of up to $75,000 in the future, as described below. In addition, the Company assumed $90,484 of debt in addition to other assets acquired and liabilities assumed, as detailed in the Allocation of Purchase Price discussion elsewhere in this Note 4.

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
Issuance of 3,124 shares of common stock			$	66,376
Issuance of 5,278 OP Units				112,159
Cash		30,981		30,981
Base consideration		209,516		209,516
Initial estimate of fair value of earnout liability		40,119		40,119
Total consideration	$	249,635	$	249,635

~~The~~According to the terms of the Merger Agreement, the Company may be required to pay additional earnout consideration of up to $75,000 payable in ~~four~~4 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 Company completed its IPO on September 21, 2020.

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.

		Number of
		Shares'				40-Day
(in thousands, except per share amounts)		OP Units		Approximate		VWAP of a
Tranche	Earnout Target^(a)	Payable^(b)		Amount of Cash		REIT Share		Applicable Earnout Period
1	$10,000		393	$	1,646	$	22.50	The two-year period beginning on September 21, 2020.
2	$15,000		589	$	2,470	$	23.75	The two-year period beginning on September 21, 2020.
3	$25,000		983	$	4,117	$	24.375	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.
4	$25,000		983	$	4,117	$	25.00	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.

^(a)	Initial contractual value of applicable earnout tranche based on ~~an $85.00~~a $21.25 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.

^(b)	Calculated based on $21.25 price per share/unit of common stock and OP Units.

Should all earnout milestones be met, an additional ~~272~~1,089 shares of common stock and an additional ~~465~~1,859 OP Units would be issued, in addition to ~~amounts payable~~the payment of $12,350 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 ~~relates~~related to the potential issuance of common shares and OP Units and approximately $6,608 ~~relates~~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) ~~Income.~~. See Note 2 for further discussion of changes in the fair value of the earnout liability subsequent to the Internalization.

Redemption Rights Agreement

The mezzanine equity common shares and OP Units 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 March 31, 2020. If an IPO does not occur on or before December 31, 2020, then each holder of mezzanine equity common shares and OP Units 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.~~

~~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~~in connection with the ~~earnout shall have~~Internalization had the right to require the Company to repurchase any or all of such holder’s shares or OP ~~Units at a price~~ ~~equal to~~Units. Such rights terminated effective with the ~~greater of (i) the initial fair value of $85~~IPO.

Upon occurrence of the IPO, the common ~~shares at the date of the Internalization or (ii) the current fair value of such common shares,~~stock and non-controlling interests issued 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,base consideration in connection with ~~an IPO, shall have filed~~the Internalization and originally classified as mezzanine equity, were reclassified as a ~~registration statement with~~component of Common Stock, Additional paid-in capital, and Non-controlling interests on the ~~SEC that has not been withdrawn as~~Condensed Consolidated Balance Sheets.

Allocation 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.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 revolving credit facility 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 ~~$1,205~~$1,929 and $3,523 in non-recurring costs associated with the Internalization during the three and nine months ended ~~March 31,~~September 30, 2020, respectively, and $923 and $1,195 of such costs during the three and nine months ended September 30, 2019, which were classified as Internalization expenses in the Condensed Consolidated Statements of Income and Comprehensive Income (Loss) ~~Income.~~.

The effect of the Internalization has been reflected in the Company’s operating results beginning on February 7, 2020. NoNaN incremental revenues were recorded as a result of the Internalization. ~~From February 7, 2020~~Subsequent to ~~March 31,~~the Internalization, during the three and nine months ended September 30, 2020, the Company incurred ~~$3,662~~$5,528 and $13,762, respectively, in expenses as a result of being ~~internalized, which~~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 ~~$1,205 non-recurring costs~~Internalization expenses discussed ~~above.~~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 ~~$5,646~~$1,929 and ~~$6,377~~$8,068 of income, respectively, for the three and nine months ended ~~March 31,~~September 30, 2020 and $9,437 and $23,418 of income, respectively, for the three and nine months ended September 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 months ended March 31, 2020 and 2019:~~follows:

	For the three months ended March 31,				For the three months ended September 30,				For the nine months ended September 30,
(in thousands)	2020		2019		2020		2019		2020		2019
Revenues	$	78,231	$	68,430	$	80,744	$	76,401	$	239,346	$	213,884
Net income		13,751		17,685		11,640		28,941		42,982		65,913

5. Acquisitions of Rental Property

The Company did ~~not~~0t complete any acquisitions of rental property during the ~~three~~nine months ended ~~March 31,~~September 30, 2020. The Company closed on the following acquisitions of rental property during the ~~three~~nine months ended ~~March 31,~~September 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									Industrial		1		76,000	^(a)
May 21, 2019									Retail		2		6,500
May 31, 2019									Retail		1		3,192
June 7, 2019									Office		1		30,589
June 26, 2019									Industrial		2		11,180
July 15, 2019									Restaurant		1		3,214
July 15, 2019									Industrial		1		11,330
July 31, 2019									Healthcare		5		27,277
August 27, 2019									Industrial		1		4,404
August 29, 2019									Industrial/Office		23		735,740
September 17, 2019									Industrial		1		11,185
				27	$	73,078	^(a)				66	$	993,689	^(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 10).

^(b)	Acquisition price does not include capitalized acquisition costs of ~~$2,205.~~$16,647.

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:

(in thousands)	For the three months ended March 31, 2019			For the nine months ended September 30, 2019
Land	$	7,149		$	155,434
Land improvements		10,506			44,929
Buildings and improvements		49,677			745,116
Acquired in-place leases^(b)(c)		6,618			77,868
Acquired above-market leases^(c)(d)		2,169			2,800
Acquired below-market leases^(d)(e)		(836	)		(15,811	)
Mortgage payable					(49,782	)
	$	75,283		$	960,554

^(b)(c)

The weighted average amortization period for acquired in-place leases is 1513 years for acquisitions completed during the ~~three~~nine months ended ~~March 31,~~September 30, 2019.

^(c)(d)

The weighted average amortization period for acquired above-market leases is 1718 years for acquisitions completed during the ~~three~~nine months ended ~~March 31,~~September 30, 2019.

^(d)(e)

The weighted average amortization period for acquired below-market leases is 1310 years for acquisitions completed during the ~~three~~nine months ended ~~March 31,~~September 30, 2019.

The above acquisitions were funded using a combination of available cash on hand, revolving credit facility borrowings ~~under~~and the ~~Company’s Revolving Credit Facility,~~issuance of unsecured term loans, and proceeds from equity issuances. All real estate acquisitions closed during the ~~three~~nine months ended ~~March 31,~~September 30, 2019, qualified as asset acquisitions and, as such, acquisition costs have been capitalized.

6. Sale of Real Estate

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

	For the three months ended March 31,						For the three months ended September 30,						For the nine months ended September 30,
(in thousands, except number of properties)	2020			2019			2020			2019			2020			2019
Number of properties disposed		10			4			5			16			18			25
Aggregate sale price	$	37,185		$	11,291		$	9,816		$	59,691		$	57,539		$	94,791
Aggregate carrying value		(27,764	)		(9,212	)		(8,327	)		(43,920	)		(45,085	)		(73,365	)
Additional sales expenses		(1,802	)		(679	)		(429	)		(3,186	)		(2,729	)		(4,654	)
Gain on sale of real estate	$	7,619		$	1,400		$	1,060		$	12,585		$	9,725		$	16,772

7. Investment in Rental Property and Lease Arrangements

The Company generally leases its investment rental property to established tenants in the industrial, healthcare, restaurant, office, retail, and other industries. At ~~March 31,~~September 30, 2020, the Company had ~~616~~611 real estate properties which were leased under leases that have been classified as operating leases and 1511 that have been classified as direct financing leases. Of the 1511 leases classified as direct financing leases, ~~four~~3 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 CPI, or increases in the tenant’s sales volume. Generally, tenants are also required to pay all property taxes and assessments, substantially maintain the interior and exterior of the building, and maintain property and liability insurance coverage. The leases also typically provide for one or more multiple year renewal options, at the election of the tenant, and are subject to generally the same terms and conditions as the initial lease.

Investment in Rental Property – Accounted for Using the Operating Method

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

(in thousands)	March 31, 2020			December 31, 2019			September 30, 2020			December 31, 2019
Land	$	545,846		$	548,911		$	542,487		$	548,911
Land improvements		274,135			275,470			274,786			275,470
Buildings and improvements		2,827,111			2,850,571			2,806,916			2,850,571
Equipment		11,492			11,492			11,870			11,492
		3,658,584			3,686,444			3,636,059			3,686,444
Less accumulated depreciation		(291,018	)		(271,044	)		(332,057	)		(271,044	)
	$	3,367,566		$	3,415,400		$	3,304,002		$	3,415,400

Depreciation expense on investment in rental property was as follows:

For the three months ended

March 31,

For the three months ended

September 30,

For the nine months ended

September 30,

(in thousands)

2020

2019

2020

2019

2020

2019

Depreciation

23,515

18,753

23,317

21,843

70,392

60,128

Estimated lease payments to be received under non-cancelable operating leases with tenants at ~~March 31,~~September 30, 2020 are as follows:

(in thousands)
Remainder of 2020	$	210,383	$	71,570
2021		284,505		289,057
2022		287,511		291,801
2023		290,357		294,743
2024		285,396		290,463
Thereafter		2,130,183		2,230,494
	$	3,488,335	$	3,468,128

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

Investment in Rental Property – Direct Financing Leases

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

(in thousands)	March 31, 2020			December 31, 2019			September 30, 2020			December 31, 2019
Undiscounted estimated lease payments to be received	$	68,898		$	72,753		$	48,713		$	72,753
Estimated unguaranteed residual values		19,827			20,358			16,049			20,358
Unearned income		(48,459	)		(51,221	)		(33,679	)		(51,221	)
Reserve for credit losses		(305	)		—			(181	)		0
Net investment in direct financing leases	$	39,961		$	41,890		$	30,902		$	41,890

Undiscounted estimated lease payments to be received under non-cancelable direct financing leases with tenants at ~~March 31,~~September 30, 2020 are as follows:

(in thousands)
Remainder of 2020	$	3,047	$	811
2021		4,138		3,304
2022		4,220		3,368
2023		4,305		3,433
2024		4,385		3,493
Thereafter		48,803		34,304
	$	68,898	$	48,713

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

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

	For the three months ended March 31,						For the three months ended September 30,				For the nine months ended September 30,
(in thousands)	2020			2019			2020		2019		2020			2019
Contractual rental amounts billed for operating leases	$	72,828		$	58,419		$	69,270	$	65,579	$	209,440		$	184,292
Adjustment to recognize contractual operating lease billings on a straight-line basis		1,665			5,171			6,768		5,575		16,709			16,015
Percentage rent income		3			—
Adjustment to revenue recognized for uncollectible rental amounts billed		(1,033	)		(440	)
Total operating lease rental revenues		73,463			63,150
Variable rental amounts earned								234		—		308			—
Earned income from direct financing leases		987			1,005			757		1,005		2,599			3,014
Operating expenses billed to tenants		3,732			4,275			3,389		3,811		11,456			10,572
Other income from real estate transactions		49			—			64		431		795			431
Adjustment to revenue recognized for uncollectible rental amounts billed								262		—		(1,961	)		(440	)
Total Lease revenues, net	$	78,231		$	68,430		$	80,744	$	76,401	$	239,346		$	213,884

8. Intangible Assets and Liabilities

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

(in thousands)	March 31, 2020			December 31, 2019			September 30, 2020			December 31, 2019
Lease intangibles:
Acquired above-market leases	$	60,394		$	62,136		$	53,563		$	62,136
Less accumulated amortization		(17,989	)		(17,433	)		(18,397	)		(17,433	)
Acquired above-market leases, net		42,405			44,703			35,166			44,703
Acquired in-place leases		346,165			349,645			333,305			349,645
Less accumulated amortization		(68,152	)		(62,454	)		(79,500	)		(62,454	)
Acquired in-place leases, net		278,013			287,191			253,805			287,191
Total intangible lease assets, net	$	320,418		$	331,894		$	288,971		$	331,894
Acquired below-market leases	$	113,091		$	113,862		$	107,625		$	113,862
Less accumulated amortization		(23,418	)		(21,640	)		(26,405	)		(21,640	)
Intangible lease liabilities, net	$	89,673		$	92,222		$	81,220		$	92,222
Leasing fees	$	16,841		$	17,013		$	15,655		$	17,013
Less accumulated amortization		(4,349	)		(4,166	)		(4,640	)		(4,166	)
Leasing fees, net	$	12,492		$	12,847		$	11,015		$	12,847

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

(in thousands)		For the three months ended March 31,					For the three months ended September 30,					For the nine months ended September 30,
Intangible	Financial Statement Presentation	2020		2019		Financial Statement Presentation	2020			2019		2020			2019
Acquired in-place leases and leasing fees	Depreciation and amortization	$	7,695	$	5,557	Depreciation and amortization	$	8,026		$	6,549	$	32,060		$	17,861
Above-market and below-market leases	Lease revenues, net		1,140		740	Lease revenues, net		(149	)		875		(25	)		2,335

Amortization expense for the three and nine months ended September 30, 2020, includes $2,459 and $14,517, respectively, of accelerated amortization resulting from early lease terminations, compared to 0 in the prior year periods.

Estimated future amortization of intangible assets and liabilities at ~~March 31,~~September 30, 2020 is as follows:

(in thousands)
Remainder of 2020	$	17,706	$	5,700
2021		23,286		22,494
2022		22,738		21,952
2023		22,411		21,626
2024		21,644		20,859
Thereafter		135,452		126,135
	$	243,237	$	218,766

9. Unsecured Credit Agreements

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

	Outstanding Balance								Outstanding Balance
(in thousands, except interest rates)	March 31, 2020			December 31, 2019			Interest Rate^(c)	Maturity Date	September 30, 2020			December 31, 2019			Interest Rate^(c)	Maturity Date
Revolving credit facilities^(a)									$	—		$	197,300		one-month LIBOR + 1.20%	^(d)
2020 Unsecured Term Loan^(a)	$	240,000		$	300,000		one-month LIBOR + 1.25%	Aug. 2020^(d)		—			300,000		one-month LIBOR + 1.25%	Feb. 2021^(e)
Unsecured Revolving Credit and Term Loan Agreement^(a)
Revolving Credit Facility		353,300			197,300		one-month LIBOR + 1.20%	Jan. 2022
2022 Unsecured Term Loan^(a)										60,000			—		one-month LIBOR + 1.25%	Feb. 2022
2023 Unsecured Term Loan(a)		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(a)		190,000			190,000		one-month LIBOR + 1.25%	Jun. 2024		190,000			190,000		one-month LIBOR + 1.25%	Jun. 2024
		808,300			652,300
2022 Unsecured Term Loan^(a)		60,000			—		one-month LIBOR + 1.25%	Feb. 2022
2026 Unsecured Term Loan^(a)		450,000			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		2,033,300			1,877,300					1,440,000			1,877,300
Debt issuance costs, net^(b)		(7,413	)		(7,919	)				(6,505	)		(7,919	)
	$	2,025,887		$	1,869,381				$	1,433,495		$	1,869,381

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

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

^(c)	At ~~March 31,~~September 30, 2020 and December 31, 2019, one-month LIBOR was ~~0.99%~~0.15% and 1.76%, respectively.

^(d)	On September 4, 2020, the Company replaced its prior $600,000 revolving credit facility with a maturity date of January 2022, with a new $900,000 facility with a maturity date of September 2023.

^(e)

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’s~~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 ~~gave notice that it was exercising~~exercised the first of these options, effective ~~as of~~on August 2, ~~2020.~~2020, extending the maturity date of the 2020 Unsecured Term Loan to February 2, 2021. The loan was repaid using proceeds from the Company’s IPO.

On September 4, 2020, the Company entered into an agreement (the “Revolving Credit Agreement”) for a $900,000 unsecured revolving credit facility (the “Revolving Credit Facility”), with JPMorgan Chase Bank, N.A., as Administrative Agent. Closing of the Revolving Credit Agreement was subject to certain customary conditions, as well as the closing of the IPO, with a minimum condition on size, and listing of the Company’s common stock, as set forth in the agreement.Closing occurred on September 21, 2020, at which time the Revolving Credit Facility replaced the Company’s then existing $600,000 unsecured revolving credit facility. The Revolving Credit Agreement includes an accordion feature to increase the aggregate facility size from $900,000 to $2,000,000, subject to the willingness of existing or new lenders to fund such increase and other customary conditions. The Revolving Credit Agreement matures on September 21, 2023. The Company has the option to extend the term of the Revolving Credit Agreement twice for six months per extension, subject to certain conditions, including payment of an extension fee equal to 0.0625% of the revolving commitments. Borrowings under the Revolving Credit Agreement are subject to interest only payments at variable rates equal to LIBOR plus a margin based on the Company’s credit rating, ranging from 0.825% to 1.55% per annum. Based on the Company’s current investment grade credit rating of Baa3, the applicable margin was 1.20% at September 30, 2020. In addition, the Revolving Credit Facility is subject to a facility fee based on the Company’s credit rating, ranging between 0.125% and 0.30% per annum. Based on the Company’s current credit rating, the facility fee was 0.25% per annum at September 30, 2020. The interest rate spreads and facility fee under the Revolving Credit Facility are identical to those of the facility that was replaced.

On February 7, 2020, the Company entered into a $60,000 term loan agreement maturing on February 28, 2022 (the “2022 Unsecured Term Loan”) with JP Morgan Chase, N.A. as administrative agent. The 2022 Unsecured Term Loan was fully funded at closing and used to repay a portion of the debt assumed by the Company as part of the Internalization. Borrowings under the 2022 Unsecured Term Loan are subject to interest only payments at variable rates equal to LIBOR plus a margin based upon the Company’s credit rating, ranging between 0.85% and 1.65% per annum. Based on the Company’s current credit rating the applicable margin was 1.25% ~~as of March 31,~~at September 30, 2020.

At ~~March 31,~~September 30, 2020, the weighted average interest rate on all outstanding borrowings was ~~3.03%. In addition, the Revolving Credit Facility is subject to a facility fee~~2.80%, exclusive of ~~0.25% per annum.~~interest rate swap agreements.

For the three and nine months ended ~~March 31, 2019,~~September 30, 2020, the Company paid ~~$5,229~~$5,918 in debt issuance costs associated with the Revolving Credit Facility. For the three and nine months ended September 30, 2019, the Company paid $1,281 and $6,510, respectively, in debt issuance costs associated with the 2020 Unsecured Term Loan, the 2026 Unsecured Term Loan and ~~the Unsecured Revolving Credit and Term Loan Agreement.~~its prior unsecured revolving credit agreement. For each separate debt instrument, on a lender by lender basis, in accordance with ASC 470-50, Debt Modifications and Extinguishment, the Company performed an assessment of whether the transaction was deemed to be new debt, a modification of existing debt, or an extinguishment of existing debt. Debt issuance costs are either deferred and amortized over

the term of the associated debt or expensed as incurred. Based on this assessment, ~~$5,229~~$5,918 of the debt issuance costs incurred induring the three and nine months ended ~~March 31,~~September 30, 2020, and $1,275 and $6,504 of the debt issuance costs incurred during the three and nine months ended September 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.

~~Additionally, $215~~ The remaining $6 of ~~unamortized~~the debt issuance costs ~~were expensed~~incurred in the three and nine months ended ~~March 31,~~September 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 (Loss) ~~Income.~~ . Additionally, during the three and nine months ended September 30, 2020, $392 of unamortized debt issuance costs were expensed and included in Cost of debt extinguishment in the accompanying Condensed Consolidated Statements of Income and Comprehensive Income (Loss). Such amounts totaled $113 and $328 during the three and nine months ended September 30, 2019, respectively.

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

For the three months ended

March 31,

For the three months ended

September 30,

For the nine months ended

September 30,

(in thousands)

2020

2019

2020

2019

2020

2019

Debt issuance costs amortization

888

553

819

611

2,528

1,761

The Company is subject to various financial and operational covenants and financial reporting requirements pursuant to its unsecured credit agreements. These covenants require the Company to maintain certain financial ratios, including leverage, fixed charge coverage, and debt service coverage, among others. As of ~~March 31,~~September 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 ~~17)~~19), 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	March 31,			December 31,				(in thousands, except interest rates)	Date	Date	Interest	September 30,			December 31,
Lender	Lender	(Month/Year)	(Month/Year)	Rate	2020			2019				Lender	(Month/Year)	(Month/Year)	Rate	2020			2019
(1)	Wilmington Trust National Association	Apr-19	Feb-28	4.92%	$	48,787		$	49,065		^{(a) (b) (c) (k)}	Wilmington Trust National Association	Apr-19	Feb-28	4.92%	$	48,234		$	49,065		^{(a) (b) (c) (k)}
(2)	Wilmington Trust National Association	Jun-18	Aug-25	4.36%		20,225			20,318		^{(a) (b) (c) (j)}	Wilmington Trust National Association	Jun-18	Aug-25	4.36%		20,042			20,318		^{(a) (b) (c) (j)}
(3)	PNC Bank	Oct-16	Nov-26	3.62%		17,789			17,885		^{(b) (c)}	PNC Bank	Oct-16	Nov-26	3.62%		17,597			17,885		^{(b) (c)}
(4)	Sun Life	Mar-12	Oct-21	5.13%		10,785			10,888		^{(b) (f)}	Sun Life	Mar-12	Oct-21	5.13%		10,575			10,888		^{(b) (f)}
(5)	Aegon	Apr-12	Oct-23	6.38%		7,604			7,788		^{(b) (g)}	Aegon	Apr-12	Oct-23	6.38%		7,230			7,788		^{(b) (g)}
(6)	M&T Bank	Oct-17	Aug-21	one - month LIBOR+3%		4,878			4,913		^{(b) (d) (h) (i)}	M&T Bank	Oct-17	Aug-21	one - month LIBOR+3%		4,807			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) (l)}
(8)	Standard Insurance Co.	Jul-10	Aug-30	6.75%		—			544		^{(b) (c) (d) (e)}	Standard Insurance Co.	Jul-10	Aug-30	6.75%		—			544		^{(b) (c) (d) (e)}
						110,818			112,151								109,076			112,151
	Debt issuance costs, net					(354	)		(358	)		Debt issuance costs, net					(324	)		(358	)
					$	110,464		$	111,793							$	108,752		$	111,793

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

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

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

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

^(e)	The interest rate represents the initial interest rate. The interest rate could have been adjusted at Standard Insurance’s discretion (based on prevailing rates) at 119 months from the first payment date.

^(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.

^(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.

^(h)	The Company entered into an interest rate swap agreement in connection with the mortgage note, as further described in Note 11.

⁽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.

^(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.

^(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.

^(l)	Notes were repaid in full on October 9, 2020, in connection with the sale of the property.

At ~~March 31,~~September 30, 2020, investment in rental property of ~~$176,805~~$174,623 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 three months ended

March 31, 2020

For the year ended

December 31, 2019

For the nine months ended

September 30, 2020

For the year ended

December 31, 2019

Number of mortgages

Outstanding balance of mortgages

541

13,905

541

13,905

The following table summarizes the cost of mortgage extinguishment:

For the three months ended

March 31,

For the three months ended

September 30,

For the nine months ended

September 30,

(in thousands)

2020

2019

2020

2019

2020

2019

Cost of mortgage extinguishment

498

—

336

842

Estimated future principal payments to be made under the above mortgage and note payable agreements, and the Company’s unsecured credit agreements (see Note 9) at ~~March 31,~~September 30, 2020 are as follows:

(in thousands)
Remainder of 2020	$	2,401	$	818
2021		258,006		18,006
2022		416,207		62,907
2023		273,332		273,173
2024		192,260		192,260
Thereafter		1,001,912		1,001,912
	$	2,144,118	$	1,549,076

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

11. Interest Rate Swaps

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

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

(in thousands, except interest rates)	(in thousands, except interest rates)								Fair Value							(in thousands, except interest rates)								Fair Value
Counterparty		Maturity Date	Fixed Rate			Variable Rate Index	Notional Amount		March 31, 2020			December 31, 2019					Maturity Date	Fixed Rate			Variable Rate Index	Notional Amount		September 30, 2020			December 31, 2019
Bank of America, N.A.		November 2023		2.80	%	one-month LIBOR	$	25,000	$	(2,178	)	$	(1,136	)			November 2023		2.80	%	one-month LIBOR	$	25,000	$	(2,029	)	$	(1,136	)
Bank of Montreal		July 2024		1.16	%	one-month LIBOR		40,000		(1,324	)		740				July 2024		1.16	%	one-month LIBOR		40,000		(1,542	)		740
Bank of Montreal		January 2025		1.91	%	one-month LIBOR		25,000		(1,806	)		(402	)			January 2025		1.91	%	one-month LIBOR		25,000		(1,889	)		(402	)
Bank of Montreal		July 2025		2.32	%	one-month LIBOR		25,000		(2,500	)		(970	)			July 2025		2.32	%	one-month LIBOR		25,000		(2,565	)		(970	)
Bank of Montreal		January 2026		1.92	%	one-month LIBOR		25,000		(2,118	)		(448	)			January 2026		1.92	%	one-month LIBOR		25,000		(2,255	)		(448	)
Bank of Montreal		January 2026		2.05	%	one-month LIBOR		40,000		(3,685	)		(1,014	)			January 2026		2.05	%	one-month LIBOR		40,000		(3,880	)		(1,014	)
Bank of Montreal		December 2026		2.33	%	one-month LIBOR		10,000		(1,231	)		(460	)			December 2026		2.33	%	one-month LIBOR		10,000		(1,281	)		(460	)
Bank of Montreal		December 2026		1.99	%	one-month LIBOR		25,000		(2,500	)		(577	)			December 2026		1.99	%	one-month LIBOR		25,000		(2,664	)		(577	)
Bank of Montreal		December 2027		2.37	%	one-month LIBOR		25,000		(3,497	)		(1,306	)			December 2027		2.37	%	one-month LIBOR		25,000		(3,629	)		(1,306	)
Bank of Montreal		May 2029		2.09	%	one-month LIBOR		25,000		(3,342	)		(799	)			May 2029		2.09	%	one-month LIBOR		25,000		(3,486	)		(799	)
Capital One, National Association		December 2021		1.05	%	one-month LIBOR		15,000		(213	)		143				December 2021		1.05	%	one-month LIBOR		15,000		(174	)		143
Capital One, National Association		December 2024		1.58	%	one-month LIBOR		15,000		(836	)		10				December 2024		1.58	%	one-month LIBOR		15,000		(885	)		10
Capital One, National Association		January 2026		2.08	%	one-month LIBOR		35,000		(3,291	)		(911	)			January 2026		2.08	%	one-month LIBOR		35,000		(3,398	)		(911	)
Capital One, National Association		April 2026		2.68	%	one-month LIBOR		15,000		(2,007	)		(944	)			April 2026		2.68	%	one-month LIBOR		15,000		(2,014	)		(944	)
Capital One, National Association		July 2026		1.32	%	one-month LIBOR		35,000		(1,844	)		720				July 2026		1.32	%	one-month LIBOR		35,000		(2,101	)		720
Capital One, National Association		December 2027		2.37	%	one-month LIBOR		25,000		(3,533	)		(1,278	)			December 2027		2.37	%	one-month LIBOR		25,000		(3,601	)		(1,278	)
M&T Bank		August 2021		1.02	%	one-month LIBOR		4,877		(45	)		41		^{(a), (b)}		August 2021		1.02	%	one-month LIBOR		4,805		(35	)		41		^{(a), (b)}
M&T Bank		September 2022		2.83	%	one-month LIBOR		25,000		(1,553	)		(862	)			September 2022		2.83	%	one-month LIBOR		25,000		(1,315	)		(862	)
M&T Bank		November 2023		2.65	%	one-month LIBOR		25,000		(2,097	)		(1,038	)			November 2023		2.65	%	one-month LIBOR		25,000		(1,964	)		(1,038	)
Regions Bank		May 2020		2.12	%	one-month LIBOR		50,000		(92	)		(104	)			May 2020		2.12	%	one-month LIBOR		50,000		—			(104	)
Regions Bank		December 2023		1.18	%	one-month LIBOR		25,000		(793	)		376				December 2023		1.18	%	one-month LIBOR		25,000		(854	)		376
Regions Bank		May 2029		2.11	%	one-month LIBOR		25,000		(3,438	)		(827	)			May 2029		2.11	%	one-month LIBOR		25,000		(3,515	)		(827	)
Regions Bank		June 2029		2.03	%	one-month LIBOR		25,000		(3,260	)		(651	)			June 2029		2.03	%	one-month LIBOR		25,000		(3,349	)		(651	)
Truist Financial Corporation		April 2024		1.99	%	one-month LIBOR		25,000		(1,655	)		(451	)			April 2024		1.99	%	one-month LIBOR		25,000		(1,632	)		(451	)
Truist Financial Corporation		April 2025		2.20	%	one-month LIBOR		25,000		(2,260	)		(781	)			April 2025		2.20	%	one-month LIBOR		25,000		(2,278	)		(781	)
Truist Financial Corporation		July 2025		1.99	%	one-month LIBOR		25,000		(2,075	)		(524	)			July 2025		1.99	%	one-month LIBOR		25,000		(2,131	)		(524	)
Truist Financial Corporation		December 2025		2.30	%	one-month LIBOR		25,000		(2,676	)		(993	)			December 2025		2.30	%	one-month LIBOR		25,000		(2,715	)		(993	)
Truist Financial Corporation		January 2026		1.93	%	one-month LIBOR		25,000		(2,146	)		(458	)			January 2026		1.93	%	one-month LIBOR		25,000		(2,230	)		(458	)
U.S. Bank National Association		June 2029		2.03	%	one-month LIBOR		25,000		(3,263	)		(681	)			June 2029		2.03	%	one-month LIBOR		25,000		(3,393	)		(681	)
U.S. Bank National Association		August 2029		1.35	%	one-month LIBOR		25,000		(1,699	)		881				August 2029		1.35	%	one-month LIBOR		25,000		(1,902	)		881
Wells Fargo Bank, N.A.		February 2021		2.39	%	one-month LIBOR		35,000		(599	)		(302	)			February 2021		2.39	%	one-month LIBOR		35,000		(269	)		(302	)
Wells Fargo Bank, N.A.		October 2024		2.72	%	one-month LIBOR		15,000		(1,591	)		(795	)			October 2024		2.72	%	one-month LIBOR		15,000		(1,550	)		(795	)
Wells Fargo Bank, N.A.		April 2027		2.72	%	one-month LIBOR		25,000		(3,878	)		(1,845	)			April 2027		2.72	%	one-month LIBOR		25,000		(3,924	)		(1,845	)
Wells Fargo Bank, N.A.		January 2028		2.37	%	one-month LIBOR		75,000		(10,597	)		(3,914	)			January 2028		2.37	%	one-month LIBOR		75,000		(10,877	)		(3,914	)
									$	(79,622	)	$	(21,560	)										$	(81,326	)	$	(21,560	)

^(a)	Notional amount at December 31, 2019 was $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) ~~Income,~~, from converting from variable rates to fixed rates under these agreements were as follows:

				Reclassification from				Total Interest Expense					Reclassification from				Total Interest Expense
	Amount of Loss			Accumulated Other				Presented in the		Amount of Gain (Loss)			Accumulated Other				Presented in the
	Recognized in			Comprehensive Loss				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 March 31,	Comprehensive Loss			Location	(Loss) Gain			(Loss) Income
For the three months ended September 30,										Comprehensive Loss			Location	(Loss) Gain			Income (Loss)
2020	$	(58,062	)	Interest expense	$	(885	)	$	20,991	$	4,352		Interest expense	$	(4,166	)	$	18,511
2019		(12,624	)	Interest expense		836			15,828		(16,380	)	Interest expense		387			18,465

				Reclassification from				Total Interest Expense
	Amount of Loss			Accumulated Other				Presented in the
	Recognized in			Comprehensive Loss				Consolidated Statements of
(in thousands)	Accumulated Other				Amount of			Income and Comprehensive
For the nine months ended September 30,	Comprehensive Loss			Location	(Loss) Gain			Income (Loss)
2020	$	(59,766	)	Interest expense	$	(8,467	)	$	59,015
2019		(52,182	)	Interest expense		2,001			51,025

Amounts related to the interest rate swaps expected to be reclassified out of Accumulated other comprehensive loss to Interest expense during the next twelve months are estimated to be a loss of ~~$14,802.~~$16,073. The Company is exposed to credit risk in the event of non-performance by the counterparties of the swaps. The Company minimizes the risk exposure by limiting counterparties to major banks who meet established credit and capital guidelines.

12. Credit Risk Concentrations

The Company maintained bank balances that, at times, exceeded the federally insured limit during the ~~three~~nine months ended ~~March 31,~~September 30, 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.

Prior to the Internalization on February 7, 2020, the Company’s rental property was managed by BRE and the Asset Manager as described in Note 3. Management fees paid to BRE and the Asset Manager represented 8%0% and ~~19%~~2% of total operating expenses for the three and nine months ended ~~March 31,~~September 30, 2020, respectively, and 17% and 18% of total operating expenses for the three and nine months ended September 30, 2019, 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 comprised 63%, 16%, and 10% of total mortgages and notes payable at September 30, 2020. The Company has mortgages and notes payable with three institutions that comprised 62%, 16%, and 10% of total mortgages and notes payable at ~~March 31, 2020 and~~ December 31, 2019. For the three and nine months ended ~~March 31,~~September 30, 2020 and 2019, the Company had no0 individual tenants or common franchises that accounted for more than 10% of total revenues.

13. Equity

On September 21, 2020, the Corporation completed the IPO and issued 33,500 shares of Class A Common Stock at an initial public offering price of $17.00 per share. As part of the IPO, the underwriters of the IPO were granted an option, exercisable within 30 days from September 21, 2020, to purchase up to an additional 5,025 shares of Class A Common Stock at the IPO price, less underwriting discounts and commissions. The net proceeds from the IPO, after deducting underwriting discounts and commissions of $34,170 and $3,010 of other expenses (including $1,656 of expenses that were recorded in Accounts payable and other liabilities at September 30, 2020), were $532,320 through September 30, 2020. The Company used the net proceeds to repay the remaining $216,488 principal and accrued interest due under the Company’s then existing revolving credit facility and the remaining $240,225 principal and accrued interest due under its 2020 Unsecured Term Loan. The remaining net proceeds will be used for general business purposes, including acquisitions. On October 20, 2020, the underwriters partially exercised their option. See Note 18.

Share Redemption Program

The Company’s Share Redemption Program was terminated effective February 10, 2020, and as a result there were no0 redemptions during the ~~three~~nine months ended ~~March 31,~~September 30, 2020. The following table summarizes redemptions under the Company’s Share Redemption ~~Program during the three months ended March 31, 2019:~~Program:

(in thousands, except number of redemptions)			For the three months ended September 30, 2019		For the nine months ended September 30, 2019
Number of redemptions requested	13		20		49
Number of shares	21		353		588
Aggregate redemption price	$	1,803	$	7,361	$	12,374

Distribution Reinvestment Plan

The Corporation had adopted a Distribution Reinvestment Plan (“DRIP”), pursuant to which the Corporation’s stockholders and holders of OP Units (other than the Corporation), could elect to have cash distributions reinvested in additional shares of the Corporation’s common stock. The DRIP was terminated effective February 10, 2020. At ~~March 31,~~September 30, 2020 and December 31, 2019, a total of ~~3,075~~12,301 and ~~3,005~~12,019 shares of common stock, respectively, have been issued under the DRIP.

14. Stock-Based Compensation

On August 4, 2020, the Company awarded 341 shares of restricted common stock under the Equity Incentive Plan to certain officers and employees. The holder of a restricted stock award is generally entitled at all times on and after the date of issuance of the restricted common shares to exercise the rights of a stockholder of the Company, including the right to vote the shares and the right to receive dividends on the shares. The restricted stock awards vest over a three or four year period from the date of the Internalization, subject to the employee’s continued service through the applicable vesting dates and in accordance with the terms of the individual award agreements. NaNne of the shares of restricted stock were vested at September 30, 2020.

The following table presents information about the Company’s restricted stock awards:

(in thousands)

For the three months ended

September 30, 2020

For the nine months ended

September 30, 2020

Compensation cost

796

Dividends declared on unvested restricted stock

The following table presents information about the Company’s restricted stock awards at September 30, 2020:

(in thousands, except recognition period)
Unamortized value of restricted stock awards	$	6,194
Weighted average amortization period (in years)		3.0

The following table presents information about the Company’s restricted stock activity during the nine months ended September 30, 2020:

(in thousands, except per share amounts)	Number of Shares		Weighted Average Grant Date Fair Value per Share
Unvested at beginning of period		—	$	—
Granted		341		20.50
Vested		—		—
Forfeited		—		—
Unvested at end of period		341	$	20.50

The August 4, 2020 grant date fair value per share of $20.50 was based on the determined share value established by the Board of Directors (“Determined Share Value”). Prior to the IPO, the Company sold shares of common stock in a private offering at a price equal to the Determined Share Value, which was established at least quarterly by the Board of Directors based on the net asset value (“NAV”) of the Company’s portfolio, input from management and third-party consultants, and such other factors as the Board of Directors determined. The Company’s NAV was calculated using its established valuation process, starting with an estimate of the fair value of the properties in the portfolio as of that date based upon, among other factors, the implied market price for each asset based upon a review of market capitalization rates.

15. Earnings per Share

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

For the three months ended
March 31,

(in thousands, except per share)

2020

2019

Basic earnings:

Net earnings attributable to Broadstone Net Lease, Inc.

$
10,816

$
13,938

Diluted earnings:

Net earnings attributable to Broadstone Net Lease, Inc.

$
10,816

$
13,938

Net earnings attributable to non-controlling interests

1,032

1,084

$
11,848

$
15,022

Basic and diluted weighted average shares outstanding:

Weighted average number of common shares outstanding
used in basic earnings per share

26,527

22,335

Effects of convertible membership units

2,526

1,737

Weighted average number of common shares outstanding
used in diluted earnings per share

29,053

24,072

Basic and diluted net earnings per common share

$
0.41

$
0.62

	For the three months ended September 30,					For the nine months ended September 30,
(in thousands, except per share amounts)	2020			2019		2020			2019
Basic earnings:
Net earnings attributable to Broadstone Net Lease, Inc. common shareholders	$	8,750		$	23,388	$	34,919		$	53,460
Less: earnings allocated to unvested restricted shares		(46	)		—		(46	)		—
Net earnings used to compute basic earnings per common share	$	8,704		$	23,388	$	34,873		$	53,460


Diluted earnings:
Net earnings used to compute basic earnings per share	$	8,704		$	23,388	$	34,873		$	53,460
Net earnings attributable to non-controlling interests		961			1,650		3,738			3,942
Net earnings used to compute diluted earnings per common share	$	9,665		$	25,038	$	38,611		$	57,402

Weighted average number of common shares outstanding:		111,371			98,568		108,300			93,575
Less: weighted average unvested restricted shares ^(a)		(216	)		—		(72	)		—
Weighted average number of common shares outstanding used in basic earnings per common share		111,155			98,568		108,228			93,575
Effects of convertible membership units ^(b)		12,226			6,948		11,519			6,948
Weighted average number of common shares outstanding used in diluted earnings per common share		123,381			105,516		119,747			100,523

Basic earnings per share	$	0.08		$	0.24	$	0.32		$	0.57
Diluted earnings per share	$	0.08		$	0.24	$	0.32		$	0.57

^(a)

Represents the weighted average effects of 341 unvested restricted shares of common stock as of September 30, 2020, which will be excluded from the computation of earnings per share until they vest. The shares of restricted common stock were not included in the calculation of diluted earnings per share, as the effect of doing so would have been anti-dilutive.

^(b)

Represents the weighted average effects of 12,226 and 6,948 OP Units outstanding at September 30, 2020 and September 30, 2019, respectively. OP Units are included in the diluted earnings per share calculation. However, because such OP Units would also require that the share of the OP income attributable to such OP units also be added back to net income, there is no effect to EPS.

In the table above, outstanding OP Units are included in the diluted earnings per share calculation. However, because such OP Units would also require that the share of the OP income attributable to such OP Units also be added back to net income, there is no effect on EPS.

~~15.~~16. Supplemental Cash Flow Disclosures

Cash paid for interest was ~~$14,010~~$50,853 and ~~$16,777~~$49,828 for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 and 2019, respectively. Cash paid for income taxes was ~~$195~~$1,385 and ~~$395~~$809 for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 and 2019, respectively.

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

During the three months ended March 31, 2020 and 2019, the Corporation issued 69 and 173 shares, respectively, of common stock with a value of approximately $5,733 and $14,533, respectively, under the terms of the DRIP (see Note 13).

•

During the nine months ended September 30, 2020 and 2019, the Corporation issued 275 and 2,199 shares, respectively, of Common Stock with a value of approximately $5,733 and $46,084, respectively, under the terms of the DRIP (see Note 13).

During the three months ended March 31, 2020, the Company issued shares of common stock and OP Units, with a total value of approximately $178,535, and earnout consideration with a fair value of $40,119 as consideration for the Internalization and assumed $90,484 of debt (see Note 4).

•

During the nine months ended September 30, 2020, the Company issued shares of Common Stock and OP Units, with a total value of approximately $178,535, and earnout consideration with a fair value of $40,119 as consideration for the Internalization and assumed $90,484 of debt (see Note 4).

~~During the three months ended March 31, 2020, the Company adjusted the carrying value of mezzanine equity non-controlling interests by $2,416 with an offset to additional paid-in capital (see Note 2).~~

•

During the nine months ended September 30, 2020, the Company adjusted the carrying value of mezzanine equity non-controlling interests by $2,513, with an offset to Additional paid-in capital.

~~At March 31, 2020 and 2019, dividend amounts declared and accrued but not yet paid amounted to $13,160 and $10,734, respectively.~~

•

During the nine months ended September 30, 2020, the Company reclassified $112,698 of mezzanine equity non-controlling interests to Non-controlling interests.

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.

•

During the nine months ended September 30, 2020, the Company reclassified $66,376 of mezzanine equity common stock, with an offset of $66,375 to Additional paid-in capital and $1 to Common stock.

Upon adoption of ASC 842 on January 1, 2019, 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.
•
During the nine months ended September 30, 2020, the Company reclassified $18,436 of the carrying value of the earnout liability, with an offset of $11,627 as a component of Non-controlling interests and $6,809 as a component of Additional paid-in capital (see Note 2).

•

During the nine months ended September 30, 2020, $1,656 of incurred but unpaid expenses associated with the IPO were recorded as an offset to Additional paid-in capital (see Note 13).

•

At September 30, 2020 and 2019, dividend amounts declared and accrued but not yet paid amounted to $20,722 and $11,932, respectively.

•

During the nine months ended September 30, 2020, the Company executed lease modifications that resulted in the lease classification changing from direct financing lease to operating lease for 4 properties. At the modification date, the net investment in the original lease, and therefore the carrying value of the assets recognized, amounted to $9,055.

•

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

•

~~16.~~17. Commitments and Contingencies

Litigation

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

Property and Acquisition Related

In connection with ownership and operation of real estate, the Company may potentially be liable for ~~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.

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

(in thousands)

March 31,

2020

December 31,

2019

September 30,

2020

December 31,

2019

Tenant improvement allowances

2,219

2,706

1,981

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 ~~March 31,~~September 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 ~~remaining lease terms~~expiration dates ranging from ~~2020~~2021 to 2023. These leases contain provisions for fixed monthly payments, subject to rent escalations. None of the leases are subject to any sublease agreement. The lease for the corporate headquarters is with 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 2034 to 2066. These leases contain provisions for fixed monthly payments, subject to rent escalations. One lease requires the Company to make annual rent payments calculated based upon sales generated at the property (“percentage rent”). None of the leases are subject to any sublease agreement.

The following table summarizes the total lease costs associated with operating leases:

		For the three months ended March 31,					For the three months ended September 30,				For the nine months ended September 30,
(in thousands)	Financial Statement Presentation	2020		2019		Financial Statement Presentation	2020		2019		2020		2019
Operating lease costs
Office leases	General and administrative	$	52	$	—	General and administrative	$	155	$	—	$	362	$	—
Ground leases	Property and operating expense		33		35	Property and operating expense		33		35		100		105
Variable lease costs
Ground leases	Property and operating expense		18		12	Property and operating expense		13		11		43		34
Total lease costs		$	103	$	47		$	201	$	46	$	505	$	139

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

March 31,

For the three months ended

September 30,

For the nine months ended

September 30,

(in thousands)

2020

2019

2020

2019

2020

2019

Operating lease payments

128

179

490

127

Estimated future lease payments required under non-cancelable operating leases at ~~March 31,~~September 30, 2020, and a reconciliation to the lease liabilities, is as follows:

(in thousands)
Remainder of 2020	$	534		$	176
2021		711			711
2022		686			686
2023		505			505
2024		120			120
Thereafter		2,411			2,411
Total undiscounted cash flows		4,967			4,609
Less imputed interest		(1,908	)		(1,822	)
Lease liabilities	$	3,059		$	2,787

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

~~17.~~18. Subsequent Events

~~Subsequent to March 31, 2020, the OP drew additional borrowings on the Revolving Credit Facility in the aggregate amount of $25,000.~~

On May 5, 2020, the Company gave notice that it was exercising the first of two six-month extension options available under the terms of the 2020 Unsecured Term Loan Agreement (see Note 9), effective as of August 2, 2020, and extending the maturity date of the loan to February 2, 2021, subject to certain customary conditions and in exchange for the payment of a 0.05% fee payable on August 2, 2020.

~~Subsequent to March 31,~~October 15, 2020, the Company paid ~~$13,160 in distributions. At its May 7,~~distributions totaling $20,722.

On October 20, 2020, ~~meeting,~~ the ~~Board of Directors undertook a full review~~underwriters of the Company’s ~~rent collection results for April, preliminary collection results for May, the outlook for collections in future months, and~~IPO partially exercised their option to purchase up to an additional 5,025 shares of the Company’s ~~overall liquidity position. Given~~Class A Common Stock at the ~~economic uncertainty~~IPO price of $17.00. The underwriters ultimately exercised the option by purchasing an additional 3,500 shares of Class A Common stock. The Company subsequently received $55,930 of additional IPO proceeds as a result of the underwriter’s exercise of their option, net of underwriting fees and rapidly evolving circumstances related to the COVID-19 pandemic (discussed below) and current tenant rent relief requests, to preserve cash and strengthen the Company’s liquidity position, the Board of Directors determined that it would temporarily suspend the Company’s monthly distribution. The previously announced distribution of $0.44 per common share and OP Unit for the month of April 2020 will be paid on May 15, 2020. The Board of Directors will re-evaluate whether or not to reinstate a distribution at its August 2020 meeting.discounts.

On ~~May 7,~~November 5, 2020, the Board of Directors ~~determined~~declared a quarterly distribution of $0.25 per share on the ~~share value~~Company’s common stock and OP Units for the ~~Corporation’s common stock~~fourth quarter of 2020, which will be payable on or before January 15, 2021 to ~~be $82.00 per share for the period May 1, 2020 through July~~stockholders and unit holders of record as of December 31, 2020. ~~However, as previously disclosed, on January 10, 2020, the Company suspended its private offering of shares of its common stock until further notice.~~

Through ~~May 7,~~November 5, 2020 the Company sold ~~three~~2 properties with an aggregate carrying value of approximately ~~$8,994~~$5,019 for total proceeds of ~~$10,538.~~$8,615. The Company incurred additional expenses related to the sales of approximately ~~$489,~~$402, resulting in a gain on sale of real estate of approximately ~~$1,055.~~$3,194.

Subsequent to September 30, 2020, the Company repaid in full the $591 outstanding balance of notes payable (see Note 10).

19. 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, ~~in March and subsequent to~~during the ~~end~~second quarter of ~~the quarter,~~2020, the Company received a number of requests for rent relief ~~requests~~and ultimately granted relief to 15 tenants.

For all but 1 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 0.6% and 1.4% of total contractual base rents due for the three months ended September 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 ~~68 tenants representing approximately 36.3%~~three months to one year, with a weighted average payback period of ~~annualized contractual revenues.~~5.6 months beginning in July 2020. At September 30, 2020, the weighted average remaining payback period for these deferrals was 4.2 months. The Company ishas collected 100% of deferred rent that was required to be repaid during the three months ended September 30, 2020 and the balance of rent deferrals remains probable of collection.

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 ~~various stages~~the original lease agreement, the amount of ~~discussion with these tenants~~straight-line lease revenue recognized in the financial statements was not impacted. Deferred rents due under the agreements are recorded as Tenant and ~~currently expects to grant relief to some~~other receivables, net in the Condensed Consolidated Balance Sheets. In certain circumstances, as part of ~~its tenants to defer rent payments as a result of their estimated lost revenues from~~ the ~~current COVID-19 pandemic; however, there can be no assurance~~deferral agreements, the Company ~~will reach an agreement with any~~negotiated lease extensions or the early exercise of tenant ~~or if an agreement is reached,~~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 ~~any such tenant~~ will be ~~able to repay any such deferred rent in~~recorded prospectively. The Company also accounted for the ~~future. The full extent~~partial abatement under the lease modification framework of ASC 842.

As of and for the nine months ended September 30, 2020, the impact of the COVID-19 pandemic on the Company’s financial condition, and results of operations ~~income, expenses,~~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 ~~cannot be determined at this time and~~ 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 ~~II,~~I, Item ~~1A.~~2, Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Quarterly Report on Form ~~10-Q.~~

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 “OP,” and to their respective subsidiaries.

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

Cautionary Note Regarding Forward-Looking Statements

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

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

~~Single-tenant leases involve significant risks~~described in Item 1. “Business,” Item 1A. “Risk Factors,” and Item 7. “Management’s Discussion and Analysis of ~~tenant default~~Financial Condition and ~~tenant vacancies;~~

~~We have limited opportunities to increase rents under~~Results of Operations” in our ~~long-term leases~~2019 Annual Report on Form 10-K, as filed 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~~the SEC on February 27, 2020 and in Part II, Item 1A. “Risk Factors” of our ~~key personnel~~Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, as filed 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 or meet our debt service obligations;~~

~~Market conditions could adversely affect our ability to refinance existing indebtedness~~the SEC on ~~acceptable terms or at all;~~May 7, 2020.

~~We are a holding company with no direct operations and rely on funds received from the OP to pay liabilities;~~

There are risks related to our recent Internalization, including our ability to effectively manage the Internalization and the outcome of any legal proceedings relating to the Internalization, and the risk that we may not realize the anticipated benefits from the Internalization or that such benefits are less than anticipated as a result of unexpected costs or liabilities that may arise from the Internalization;

~~Epidemics, pandemics, and other public health crises, including the ongoing COVID-19 pandemic;~~

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

~~Failure to qualify as a REIT for U.S. federal income tax purposes would materially and adversely affect us and the value of our stock.~~

You are cautioned not to place undue reliance on any forward-looking statements included in this Quarterly Report on Form 10-Q. All forward-looking statements are made as of the date of this Quarterly Report on Form 10-Q and the risk that actual results, performance, and achievements will differ materially from the expectations expressed in or referenced by this Quarterly Report on Form 10-Q will increase with the passage of time. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments, or otherwise, except as required by law. Important factors that could cause results to differ materially from the forward-looking statements are described in Item 1. “Business,” Item 1A. “Risk Factors,” and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2019 Annual Report on Form 10-K, as filed with the SEC on February 27, 2020 and in Part II, Item 1A. “Risk Factors” of this Form 10-Q.

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~~MD&A as described below:

“annualized base rent” or “ABR” means the cash rent due for the last month of the reporting period, adjusted to remove rent from properties sold during the month and to include a full month of contractual cash rent for properties acquired during the month, and annualized;

•

“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 the first half 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 9.8% of our 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, and was calculated 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;

•

“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.~~

•

“Revolving Credit Facility” means our $900 million unsecured revolving credit facility, dated September 21, 2020, with J.P. Morgan Chase Bank, N.A. and the other lenders party thereto, which replaced our prior $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 acquire, own, and manage primarily single-tenant commercial real estate properties that are net leased on a long-term basis to a diversified group of tenants. Since our inception in 2007, we have selectively invested in net leased assets in the industrial, healthcare, restaurant, office, and retail property ~~types, and as~~types. As of ~~March 31,~~September 30, 2020, our portfolio has grown to ~~635~~627 properties in 41 U.S. states and one property in Canada, with an aggregate gross asset value of approximately $4.0 billion.

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

Diversified Portfolio. As of ~~March 31,~~September 30, 2020, our portfolio comprised approximately ~~27.4~~27.3 million rentable square feet of operational space, and was highly diversified based on property type, geography, tenant, and ~~industry:~~industry, and is cross-diversified within each (e.g., property-type diversification within a geographic concentration):

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

Geographic Diversity: Our properties are located in 41 U.S. states and British Columbia, Canada, with no single geographic concentration exceeding ~~10.3%~~10.5% of our ABR.

Tenant and Industry Diversity: Our properties are occupied by approximately ~~181~~182 different commercial tenants who operate ~~167~~169 different brands that are diversified across 54 differing industries, with no single tenant accounting for more than ~~2.9%~~2.5% of our ABR.

Strong In-Place Leases with Significant Remaining Lease Term. As of ~~March 31,~~September 30, 2020, our portfolio was approximately ~~99.6%~~99.8% leased based on rentable square footage with an ABR weighted average remaining lease term of approximately ~~11.3~~10.8 years, excluding renewal options.

Standard Contractual Base Rent Escalation. Approximately ~~98.4%~~98.3% of our leases have contractual rent escalations, with an ABR weighted average minimum increase of 2.1%.

Extensive Tenant Financial Reporting. Approximately ~~87.6%~~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 ~~4.5%~~6.4% of our ABR is received from tenants ~~that are public companies, and required to file financial statements with the SEC, although they~~who are not required to provide us with specified financial information under the terms of our ~~lease.~~lease, but whose financial statements are available publicly, either through SEC filings or otherwise.

Further information concerning our real estate portfolio is included in Real Estate Portfolio Information below.

Recent Developments — – Stock Split and Initial Public Offering

On September 18, 2020, we effected a four-for-one split on the outstanding shares of our common stock (“Common Stock”). Concurrent with the stock split, the OP effected a four-for-one stock split of its outstanding OP Units. No fractional shares or OP Units were issued as a result of the stock split. All historic share and per share amounts have been adjusted to give retroactive effect to the stock split.

On September 21, 2020, we closed an initial public offering (“IPO”) at $17.00 per share, of 33.5 million shares of a new class of common stock, $0.00025 par value per share (“Class A Common Stock”). Shares of the Class A Common Stock are listed on the New York Stock Exchange under the symbol “BNL”. The terms of the Class A Common Stock are identical to the terms of the Common Stock, except that each share of Class A Common Stock will automatically convert into one share of Common Stock on March 20, 2021. The Common Stock will subsequently be listed on the New York Stock Exchange on March 22, 2021, which represents the first trading day following the 180-day period following the closing of the IPO.

On October 20, 2020, the underwriters of our IPO partially exercised their option to purchase up to an additional 5.025 million shares of our Class A Common Stock at the IPO price of $17.00. The underwriters ultimately exercised such option by purchasing an additional 3.5 million shares of Class A Common stock. We subsequently received $55.9 million of additional IPO proceeds as a result of the underwriter’s exercise of their option, net of underwriting fees and discounts.

COVID-19 Pandemic Update

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, including industries in ~~the country.~~which our tenants operate. In response to the COVID-19 pandemic, many countries and U.S. states, including the areas in which we operate, ~~have~~ adopted certain measures to mitigate the ongoing public health crises. Such measures ~~include~~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 some locations. We cannot predict whether and to what extent additional states and cities will implement similar restrictions or when restrictions currently in place will expire. Further, the impacts of a potential worsening of 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 ~~has negatively impacted nearly every industry directly or indirectly.~~

~~The COVID-19 pandemic did not have a material impact~~ on our results of operations, ~~and~~ liquidity and capital resources, ~~as of and for~~during the three and nine months ended March 31, 2020. While we are still in the early stages of navigating the actual and potential impacts the pandemic will have on our tenants and our business, the sections below summarize developments subsequent to quarter-end andSeptember 30, 2020, as well as management’s view of ~~the~~ potential impacts ~~the COVID-19 pandemic may have~~ on our future results of operations, liquidity and capital ~~resources, and other various company-specific matters.~~resources. For more discussion on the risks associated with the COVID-19 outbreak, see Part II, Item 1A. “Risk Factors” of ~~this~~our Quarterly Report on Form ~~10-Q.~~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,~~activity, 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. ~~We collected approximately 98% of rents due as of March 31, 2020; however, the~~The COVID-19 pandemic’s impact on us has primarily manifested through tenant requests for rent relief, which we ~~started to receive~~received in late March ~~2020. Based on industry~~2020 and ~~property type and ABR~~during the second quarter from 59 tenants related to 295 properties. As of June 30, 2020, we had resolved all active outstanding requests for rent relief as of ~~March 31, 2020,~~that time, and no further requests were received during the ~~following represents the scope~~third quarter of 2020. In total, we granted partial rent relief requests to 15 tenants related to 93 properties.

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, and 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 ~~have received through April 30, 2020:~~

Rent Relief Request as of April 30, 2020

Portfolio Diversification as of March 31, 2020

Tenant Industry

# Properties

ABR  ($000s)

% of Portfolio ABR

% of Property Type ABR

# Properties

ABR  ($000s)

% of Portfolio ABR

Restaurants

186

$
34,357

11.8
%

74.1
%

246

$
46,337

15.9
%
Auto Parts & Equipment

25

9,555

3.3
%

94.6
%

31

10,103

3.5
%
Specialized Consumer
   Services

36

9,077

3.1
%

97.4
%

37

9,318

3.2
%
Healthcare Facilities

29

8,072

2.8
%

17.9
%

96

45,203

15.6
%
Home Furnishings

2

5,185

1.8
%

100.0
%

2

5,185

1.8
%
Home Furnishings Retail

9

3,910

1.3
%

32.1
%

19

12,195

4.2
%
Movies & Entertainment

1

3,125

1.1
%

100.0
%

1

3,125

1.1
%
Personal Products

2

2,899

1.0
%

100.0
%

2

2,899

1.0
%
Air Freight & Logistics

1

2,744

0.9
%

42.9
%

3

6,400

2.2
%
Industrial Machinery

6

2,675

0.9
%

49.1
%

15

5,454

1.9
%
Specialty Stores

1

2,557

0.9
%

41.8
%

15

6,114

2.1
%
Distillers & Vintners

1

2,344

0.8
%

100.0
%

1

2,344

0.8
%
Internet & Direct
   Marketing Retail

1

2,280

0.8
%

49.9
%

2

4,564

1.6
%
Construction Machinery &
   Heavy Truck

1

1,972

0.7
%

100.0
%

1

1,972

0.7
%
Food Retail

1

1,860

0.6
%

100.0
%

1

1,860

0.6
%
Footwear

1

1,761

0.6
%

100.0
%

1

1,761

0.6
%
Automotive Retail

6

1,717

0.6
%

87.4
%

8

1,964

0.7
%
Data Processing &
   Outsourced Services

1

1,580

0.5
%

100.0
%

1

1,580

0.5
%
Marine

1

1,571

0.5
%

100.0
%

1

1,571

0.5
%
Life Sciences Tools
   & Services

3

1,449

0.5
%

36.5
%

5

3,973

1.4
%
Automobile
   Manufacturers

1

1,104

0.4
%

100.0
%

1

1,104

0.4
%
Healthcare Services

1

1,058

0.4
%

13.0
%

16

8,143

2.8
%
Food Distributors

1

1,031

0.4
%

8.1
%

7

12,670

4.4
%
Paper Packaging

1

793

0.3
%

20.1
%

3

3,948

1.4
%
Commodity Chemicals

3

783

0.3
%

56.3
%

4

1,392

0.5
%
Miscellaneous

—

—

—

—

117

89,367

30.6
%
Total

321

$
105,459

36.3
%

N/A

636

$
290,546

100.0
%

Rent Relief Request as of April 30, 2020

Portfolio Diversification as of March 31. 2020

Property Type

# Properties

ABR ($000s)

% of Portfolio ABR

% of Property Type ABR

# Properties

ABR ($000s)

% of Portfolio ABR

Industrial

45

$
43,587

15.0
%

34.5
%

113

$
126,477

43.5
%
Healthcare

33

10,579

3.7
%

18.5
%

122

57,115

19.7
%
Restaurant

186

34,357

11.8
%

75.2
%

245

45,673

15.7
%
Office

3

4,705

1.6
%

16.5
%

17

28,491

9.8
%
Retail

53

10,371

3.6
%

37.2
%

128

27,855

9.6
%
Other

1

1,860

0.6
%

37.7
%

11

4,935

1.7
%
Total

321

$
105,459

36.3
%

N/A

636

$
290,546

100.0
%

~~Although~~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 ~~requests range in scope, the most common request is for a full or partial rent deferment for three months, with~~shortest possible repayment ~~over a six- to 12-month~~ period ~~following the reinstatement~~and, when possible, lease enhancements (e.g. extensions of regular rent payments. In certain cases, we are also negotiating for lease extensions or the early exercise of a tenant renewal option in addition to the repayment of the deferred rent. We have not agreed to any rent forgiveness or permanent abatement and are only negotiating rent deferrals.term). There ~~are~~were several tenants ~~that have~~who requested rent relief that we ~~believe are~~believed were well positioned to continue making rent payments during ~~this period.~~the pandemic. Many of those tenants ~~have~~had strong balance sheets and liquidity positions, ~~have~~had applied for or received Paycheck Protection Program loan funding under the CARES Act, or ~~are~~were designated as essential businesses and ~~can~~could continue to operate despite restrictions on other businesses. ~~At this point, we have~~We declined to agree to any rent relief in those circumstances, and ~~are seeking~~in all such cases the tenants continued to ~~collect the full amount~~pay all rents due as of September 30, 2020.

The rent relief requests we granted included partial deferral of payment of rent ~~that is due but cannot provide any assurances regarding~~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. At September 30, 2020, the ~~ultimate outcome of our ongoing discussions.~~

~~Despite~~deferral periods for all 14 tenants who received partial rent deferrals have expired, and the ~~extent of requests, we have collected 87.8%~~weighted average repayment period for remaining deferrals was 4.2 months. The partial abatement represents a portion of rents due ~~for April 2020,~~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 ~~through May 6, 2020, have collected 77.5% of rents due for May 2020. The duration of~~an upside percentage rent clause during the ~~COVID-19 pandemic and our tenants’ ability~~abatement period, which we expect to ~~return to business after governmental restrictions are lifted will have a significant impact on our ability to continue to collect rents.~~provide us with long-term value accretion.

In circumstances where we ~~agree~~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 ~~agree~~agreed to defer will impact our cash flows from ~~operations,~~operations.

The following chart summarizes our third quarter 2020 rent collections to date:

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

The following tables summarize our third quarter 2020 rent collection, in total and ~~may~~by tenant industry and property type:

	% of
	September	% Base Rent Collected				% Base Rent Not Collected
Tenant Industry	ABR	July	August	September	Q3	Deferred	Abated	Bankruptcy
Restaurants	15.8%	89.6%	92.0%	92.0%	91.2%	—	8.8%	—
Home Furnishing Retail	2.8%	90.5%	100.0%	100.0%	96.7%	—	—	3.3%
Specialty Stores	2.2%	89.4%	89.4%	89.5%	89.5%	10.5%	—	—
Industrial Machinery	1.9%	84.6%	100.0%	100.0%	94.9%	5.1%	—	—
Life Sciences Tools & Services	1.4%	82.0%	100.0%	100.0%	94.0%	6.0%	—	—
Movies & Entertainment²	1.1%	50.0%	100.0%	100.0%	83.5%	16.5%	—	—
All Other	74.8%	100.0%	100.0%	100.0%	100.0%	—	—	—
Grand Total	100.0%	96.7%	98.5%	98.5%	97.9%	0.6%	1.4%	0.1%

²	Industrial tenant.

	% of
	September	% Base Rent Collected				% Base Rent Not Collected
Property Type	ABR	July	August	September	Q3	Deferred	Abated	Bankruptcy
Industrial	44.4%	97.6%	99.5%	99.4%	98.8%	1.2%	—	—
Healthcare	20.1%	98.6%	99.9%	99.9%	99.5%	0.5%	—	—
Restaurant	15.5%	89.4%	91.9%	91.9%	91.1%	—	8.9%	—
Office	10.0%	100.0%	100.0%	100.0%	100.0%	—	—	—
Retail	8.3%	96.2%	100.0%	100.0%	98.7%	—	—	1.3%
Other	1.7%	100.0%	100.0%	100.0%	100.0%	—	—	—
Grand Total	100.0%	96.7%	98.5%	98.5%	97.9%	0.6%	1.4%	0.1%

Rent collections have remained strong during the fourth quarter to date. As of the date of this filing, we had collected 98.5% of contractual base rents due for October 2020 as well as 100% of amounts due to be repaid in October 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 the potential ongoing impacts of the virus on our tenants’ ability to conduct their business should additional governmental restrictions be implemented, could have a significant negative impact ~~the amount of AFFO we recognize each period. Refer~~on our ability to ~~Impact~~continue to ~~Liquidity and Capital Resources~~ ~~below for further discussion.~~collect future rents.

Property Dispositions

From time to time, we ~~will~~ strategically dispose of properties, primarily ~~where~~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. We were~~transactions and weakening market conditions for several property types resulting from an increase in vacant rental space. Although we have been able to dispose of ~~certain~~ properties ~~at the end of~~during the first ~~quarter and early~~ nine months of 2020 at advantageous prices, in ~~the second quarter that were already under contract and substantially along in the disposition process, and used the proceeds to bolster our liquidity position. In~~ the short term, ~~however,~~ the slowdown in market activity may inhibit our ability to further dispose of properties we have identified for disposition, including those leased by tenants 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. ~~Management believes~~We will continue to monitor the ~~market slowdowns are temporary,~~pandemic’s impact and ~~will~~continue to selectively dispose of properties ~~as opportunities become available.~~when advantageous to do so.

Lease Renewals and Occupancy

As of ~~March 31,~~September 30, 2020, the ABR weighted average remaining term of our ~~leases~~portfolio was approximately ~~11.3~~10.8 years, excluding renewal ~~options. As of March 31, 2020,~~options, and approximately ~~8.5%~~8.2% 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 ~~subsequent to quarter-end,~~during the COVID-19 pandemic, standing at ~~99.5%~~99.6% as of September 30, 2020 based on rentable square ~~footage as~~footage. Additionally, when negotiating COVID-19 related rent relief agreements, we have sought to extend lease terms where possible to preserve the continuity of ~~April 30, 2020,~~tenants and long-term cash flows derived from our portfolio. While we believe our portfolio’s diversity should allow us to manage the impact the COVID-19 pandemic may have on lease renewals and occupancy, we continue to monitor the ~~impact~~pandemic’s effects on several industries in which our tenants operate, such as bankruptcies by large retailers, continued or increased occupancy limits established by local governments on the ~~COVID-19 pandemic has~~casual dining industry, as well as the potential long-term effects on ~~our tenants.~~the demand for and utilization of office space as companies consider adopting increased work from home models.

Acquisition ~~Volume~~Activity

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 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 to fund our capital needs.~~financing. The COVID-19 pandemic ~~has~~ caused a slowdown in acquisition volume, and we did not acquire any new properties during the first nine months of 2020. We have strategically redeployed our acquisitions team to assist with the influx of requests for rent relief, including performing credit analysis and negotiating deferments with tenants. During these uncertain times we are focused on preserving shareholder value. We will continuecontinued to monitor the pandemic’s impact toon capitalization rates, interest rates, and access and cost of equity and debt ~~capital,~~capital.

We currently have a robust pipeline of potential investment opportunities, including two acquisitions that are currently under executed contract. We are a party to two purchase and ~~return~~sale agreements for an aggregate purchase price of approximately $33 million (excluding transaction costs) for a weighted average initial cash capitalization rate of approximately 7.03%. We expect that these transactions will close during the fourth quarter of 2020. At the time of acquisition, the properties will have an expected weighted average remaining lease term of approximately 18.2 years and weighted average annual rent increases of approximately 1.92%. In connection with these acquisitions, we expect to enter into or assume leases with an initial ABR of approximately $2.3 million. While we regard the completion of these pending acquisitions to be probable, these transactions are subject to customary closing conditions, including the completion of due diligence, and there can be no assurance that these acquisitions will be completed on the terms described above or at all. These acquisitions will be funded using the net proceeds raised pursuant to our ~~focus on growth through acquisitions and execution on our de-leveraging initiatives when it is prudent to do so.~~initial public offering.

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 property including real estate taxes, insurance, maintenance, repairs, and capital costs. A limited number of leases require ~~us to~~that we 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. ~~An increase in the number of leases in which we are responsible for some or all of these expenses could negatively influence our operating results.~~ 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 ~~March 31,~~September 30, 2020, master leases contributed approximately ~~36.3%~~34.2% 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), ~~74.1%~~73.4% of our restaurant property ABR ~~(164~~(161 of our ~~245~~240 restaurant properties), and ~~68.0%~~51.3% of our retail property ABR ~~(85~~(78 of our 128 retail properties).

AsIn instances in which we ~~review requests for~~granted rent relief, ~~and consider granting limited deferments,~~ we ~~are focused on ensuring~~generally preserved the rights afforded to us pursuant to our contractual rights under the leases are preserved, and are evaluating opportunities to create value by negotiating enhanced financial reporting under the leases and the possibility for lease extensions or early lease renewals.leases. The ongoing COVID-19 pandemic ~~however,~~ presents certain risks of modifications to our lease terms, including certain rights we have under master ~~leases and~~leases. The ongoing impact of the COVID-19 pandemic could also increase the risk of tenants’ failure to meet their lease obligations, including the risk that the prolonged ~~exposure~~economic downturn forces tenants into bankruptcy. An increase in the number of leases under which we are responsible for some or all property related expenses could negatively influence our operating results.

Interest Expense

We anticipate that we will continue to incur debt ~~in the future in order~~ 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.

WeInterest rates have ~~seen a decrease in interest rates~~continued to decline as the U.S. federal government attempts to combat the economic impacts of the COVID-19 ~~pandemic, which we have been able~~pandemic. We benefited from this dynamic to ~~take advantage of on approximately $653.3 million of~~the extent our floating rate borrowings ~~as of March 31, 2020. Our floating rate~~were unhedged during the third quarter. Such 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 ~~0.99%~~0.15% at ~~March 31,~~September 30, 2020. ~~Additionally, as~~We repaid $456.3 million of ~~April~~unhedged borrowings with the proceeds of our IPO, and approximately $110 million of our outstanding borrowings at September 30, 2020, ~~the one-month LIBOR rate was 0.33%. Simultaneously, restrictions~~remained unhedged. Restrictions in credit markets ~~have~~ resulted in ~~an increase in~~increased borrowing spreads across the debt capital ~~markets. Approximately $240 million~~markets earlier in the year as compared to the end of 2019, although they have since narrowed. As market conditions evolve and we return to executing against our ~~borrowings under~~growth strategy, additional changes in interest rates and our 2020 Unsecured Term Loan have a maturity within one year. On May 5, 2020, we gave notice that we were exercising the first of two available extension options effective upon the original maturity date of the debt in August 2020, 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 that time. Accordingly, we do not expect the increase in borrowing spreads ~~to have a material impact to us at this time.~~

~~In response to the COVID-19 pandemic, and discussed further below in~~ ~~Impact to Liquidity and Capital Resources, we have bolstered~~could influence our liquidity profile and cash on hand position, with approximately $95.2 million in cash and cash equivalents and restricted 1031 funds at March 31, 2020. We have typically used a portion of these funds, in addition to cash generated by operating activities, to pay down our Revolving Credit Facility balances. Accordingly, the increased cash position and corresponding leverage balances will result in increased interest expense. We are committed to an investment grade balance sheet, and plan to deleverage once the capital markets have improved.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~~Since March 16, 2020, we have been primarily operating under a work from home ~~policy effective on March 16, 2020, successfully migrating approximately 71 employees out~~policy. As of the ~~office.~~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 ~~newly~~ remote workforce, and do not believe we will incur significant costs in the future. We ~~expect~~have experienced 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 ~~as we navigate~~if the impacts of the COVID-19 ~~pandemic.~~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~~tenants and maintain our portfolio’s occupancy. We have historically experienced only a limited number of tenant bankruptcies, which have not been material to our financial results. During the nine months ended September 30, 2020, only one of our tenants was subject to bankruptcy proceedings which resulted in vacancies and our assumption of certain landlord responsibilities. The bankruptcy for this tenant concluded during the third quarter, we successfully re-leased the majority of properties, and reached a court approved settlement whereby we received approximately 86.5% of the total post-petition base rent that had been owed by the tenant. 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. As of March 31, 2020, we have not identified any impairment triggering events as a result of the COVID-19 pandemic, including tenant requests for rent relief, but 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. 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 nine months ended September 30, 2020, we recognized $14.7 million and $17.4 million, respectively, of impairment charges, mainly resulting from changes in our long-term hold strategy with respect to the individual properties, which was due in part to unfavorable market trends resulting from the COVID-19 pandemic in geographic areas where we have vacant properties being marketed for re-lease or sale. 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

We have taken proactive measures to bolster our liquidity profile, including borrowing an additional $75 million on our Revolving Credit Facility at quarter end, $25 million of which was funded subsequent to quarter end, strategically reverting approximately $35 million of 1031 proceeds originally planned to be reinvested in replacement properties, and holding onto cash generated from rentals that otherwise would have been used to pay down our Revolving Credit Facility. As of March 31, 2020, we had approximately $95.2 million in cash and cash equivalents and restricted 1031 cash not yet reverted to our operating account, excluding the additional $25 million Revolving Credit Facility borrowing funded on April 2, 2020. Given the economic uncertainty and ~~rapidly~~ evolving circumstances related to the COVID-19 pandemic and ~~current~~the potential for further tenant requests for rent relief, we ~~intend~~continue to evaluate all options for ~~preserving cash and~~ strengthening our liquidity position. ~~As discussed below, at its May 7, 2020 meeting,~~Most recently, our IPO and upsizing of our Revolving Credit Facility during the third quarter have each bolstered our liquidity, reduced our leverage and allowed us to maintain financial flexibility. Earlier in the year, we temporarily suspended our distributions to shareholders based upon the uncertainties surrounding the COVID-19 pandemic. Our board of directors ~~determined that we would temporarily suspend our monthly distribution. The board~~approved a quarterly distribution of ~~directors will re-evaluate whether to reinstate the dividend~~$0.135 per share at its August 4, 2020 meeting. ~~We intend~~At its November 5, 2020 meeting, the board approved a $0.25 distribution per common share and OP Unit to ~~maintain REIT status,~~stockholders and OP Unit holders of record as of December 31, 2020, payable on or before January 15, 2021.

In addition to ~~make a special distribution in~~our $109.0 million of cash and restricted cash on hand at September 30, 2020, ~~in order to maintain REIT status if it becomes necessary to do so.~~

we also have $900 million of available capacity under our Revolving Credit Facility. 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. At March 31, 2020, we believe we were in compliance with all required covenants. In addition to our cash on hand, we also have $246.7 million of available capacity under our Revolving Credit Facility, and $100 million of available capacity in the form of an accordion feature on our 2026 Unsecured Term Loan. Taking into consideration our leverage covenant ratios, ~~however,~~ as of ~~March 31,~~September 30, 2020 we had ~~$50.7~~approximately $738 million of available borrowing capacity under our covenants. Management believes we were in compliance with the terms of our covenants ~~excluding the $25 million revolver draw subsequent to quarter end.~~ as of September 30, 2020.

We believe ~~the~~our cash on-hand and available capacity on our credit facilities ~~including the restrictions imposed by our covenant ratios, and our ability to manage distributions provide~~provides us with the ability to meet all current obligations ~~including maintaining~~and to maintain our REIT ~~status, for at least the next four quarters prior to collecting another dollar of rent.~~

In addition to these factors, the total market value and total unencumbered eligible property value included in our leverage covenant ratios are computed in part based on a computation of portfolio net operating income, which takes into consideration contractual rents with exclusions for certain aged delinquencies and tenant defaults, divided by a stated market capitalization rate. Management believes we were in compliance with our covenants as of March 31, 2020, and we believe it is probable we will continue to be in compliance.status. However, the COVID-19 pandemic’s ultimate impact toon our tenants is not yet known, and could result in significantly aged delinquencies and tenant defaults, which would have a direct impact toon our leverage covenant ratios. ~~Accordingly, there are no assurances~~

~~that we will continue to comply with our covenants.~~ 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~~

Real Estate Portfolio Information

~~In order~~To achieve an appropriate risk-adjusted return, we intend to ~~benefit from increasing economies~~maintain a highly diversified portfolio of ~~scale~~primarily single-tenant commercial real estate properties spread across multiple property types, geographic locations, tenants, and industries and that have cross-diversification within each.

The following charts summarize our portfolio diversification by property type, tenant, brand, industry and geographic location as ~~we continue to grow,~~of September 30, 2020. The percentages below are calculated based on our ~~board~~ABR of ~~directors made the decision to internalize our management structure, which was completed on February 7,~~$288.0 million as of September 30, 2020. ~~In connection with the Internalization, we terminated our management agreements with BRE, entered into employment agreements with each~~

Diversification by Property Type

Property Type	# Properties		ABR ($'000s)		ABR as a % of Total Portfolio			Square Feet ('000s)		SF as a % of Total Portfolio
Industrial
Manufacturing		55	$	40,876		14.2	%		7,635		28.0	%
Distribution & Warehouse		32		39,759		13.8	%		7,013		25.7	%
Food Processing		14		18,275		6.3	%		2,131		7.8	%
Flex and R&D		7		16,600		5.8	%		1,457		5.3	%
Cold Storage		4		12,497		4.3	%		933		3.4	%
Industrial Total		112		128,007		44.4	%		19,169		70.2	%
Healthcare
Clinical		50		25,540		8.9	%		1,081		3.9	%
Surgical		15		9,701		3.4	%		345		1.3	%
Animal Health Services		20		8,072		2.8	%		314		1.1	%
Life Science		9		7,478		2.6	%		549		2.0	%
Healthcare Services		26		6,771		2.4	%		262		1.0	%
Healthcare Total		120		57,562		20.1	%		2,551		9.3	%
Restaurant
Quick Service Restaurants		150		24,589		8.5	%		506		1.9	%
Casual Dining		90		20,117		7.0	%		575		2.1	%
Restaurant Total		240		44,706		15.5	%		1,081		4.0	%
Office
Strategic Operations		7		13,554		4.7	%		1,021		3.7	%
Corporate Headquarters		6		9,636		3.3	%		671		2.5	%
Call Center		4		5,683		2.0	%		392		1.4	%
Office Total		17		28,873		10.0	%		2,084		7.6	%
Retail
Automotive		56		9,722		3.4	%		784		2.9	%
General Merchandise		57		8,451		2.9	%		677		2.5	%
Home Furnishings		15		5,713		2.0	%		860		3.1	%
Retail Total		128		23,886		8.3	%		2,321		8.5	%
Other		11		4,963		1.7	%		117		0.4	%
Total		628	$	287,997		100.0	%		27,323		100.0	%

Diversification by Tenant

Tenant	Property Type	# Properties		ABR ($'000s)		ABR as a % of Total Portfolio			Square Feet ('000s)		SF as a % of Total Portfolio
Red Lobster Hospitality & Red Lobster Restaurants LLC^*	Casual Dining		24	$	7,306		2.5	%		196		0.7	%
Jack's Family Restaurants LP^*	Quick Service Restaurants		36		6,067		2.1	%		121		0.5	%
Axcelis Technologies, Inc.	Flex and R&D		1		5,730		2.0	%		417		1.5	%
Hensley & Company^*	Distribution & Warehouse		3		5,643		2.0	%		577		2.1	%
Outback Steakhouse of Florida LLC^*1	Casual Dining		23		5,313		1.8	%		146		0.5	%
Krispy Kreme Doughnut Corporation	Quick Service Restaurants/ Food Processing		27		5,034		1.8	%		156		0.6	%
BluePearl Holdings, LLC^*	Animal Health Services		12		5,009		1.7	%		154		0.6	%
Big Tex Trailer Manufacturing, Inc.^*	Automotive/Distribution & Warehouse/Manufacturing/ Corporate Headquarters		17		4,764		1.7	%		1,302		4.8	%
Siemens Medical Solutions USA, Inc. & Siemens Corporation	Manufacturing/Flex and R&D		2		4,646		1.6	%		545		2.0	%
Nestle' Dreyer's Ice Cream Company	Cold Storage		1		4,344		1.5	%		310		1.1	%
Total Top 10 Tenants			146		53,856		18.7	%		3,924		14.4	%

Nationwide Mutual Insurance Company^*	Strategic Operations		2		4,165		1.5	%		407		1.5	%
Arkansas Surgical Hospital	Surgical		1		4,156		1.5	%		129		0.5	%
American Signature, Inc.	Home Furnishings		6		4,141		1.4	%		474		1.7	%
Cascade Aerospace Inc.	Manufacturing		1		3,884		1.3	%		231		0.9	%
Fresh Express Incorporated	Food Processing		1		3,819		1.3	%		335		1.2	%
Aventiv Technologies, LLC	Corporate Headquarters		1		3,742		1.3	%		154		0.6	%
Bob Evans Restaurants, LLC^*	Casual Dining		23		3,728		1.3	%		121		0.4	%
Tractor Supply Company	General Merchandise		14		3,604		1.2	%		281		1.0	%
Centene Management Company, LLC	Strategic Operations		1		3,267		1.2	%		220		0.8	%
Zips Car Wash, LLC^*	Automotive		14		3,255		1.1	%		57		0.2	%
Total Top 20 Tenants			210	$	91,617		31.8	%		6,333		23.2	%

¹	Tenant’s properties include 21 Outback Steakhouse restaurants and two Carrabba’s Italian Grill restaurants.

^*	Subject to a master lease.

Diversification by Brand

Brand	Property Type	# Properties		ABR ($'000s)		ABR as a % of Total Portfolio			Square Feet ('000s)		SF as a % of Total Portfolio
Red Lobster^*	Casual Dining		24	$	7,306		2.5	%		196		0.7	%
Jack's Family Restaurants^*	Quick Service Restaurants		36		6,067		2.1	%		121		0.5	%
Axcelis	Flex and R&D		1		5,730		2.0	%		417		1.5	%
Hensley^*	Distribution & Warehouse		3		5,643		2.0	%		577		2.1	%
Bob Evans Farms^*1	Casual Dining/Food Processing		24		5,574		1.9	%		297		1.0	%
Wendy's^#	Quick Service Restaurants		39		5,568		1.9	%		115		0.4	%
Krispy Kreme	Quick Service Restaurants/ Food Processing		27		5,034		1.8	%		156		0.6	%
BluePearl Veterinary Partners^*	Animal Health Services		12		5,009		1.7	%		154		0.6	%
Big Tex Trailers^*	Automotive/Distribution & Warehouse/Manufacturing/ Corporate Headquarters		17		4,764		1.7	%		1,302		4.8	%
Siemens	Manufacturing/Flex and R&D		2		4,646		1.6	%		545		2.0	%
Total Top 10 Brands			185		55,341		19.2	%		3,880		14.2	%

Outback Steakhouse^*	Casual Dining		21		4,624		1.6	%		133		0.5	%
Nestle'	Cold Storage		1		4,344		1.5	%		310		1.1	%
Taco Bell^#	Quick Service Restaurants		32		4,169		1.5	%		82		0.3	%
Nationwide Mutual Insurance Co.^*	Strategic Operations		2		4,165		1.5	%		407		1.5	%
Arkansas Surgical Hospital	Surgical		1		4,156		1.5	%		129		0.5	%
Value City Furniture	Home Furnishings		6		4,141		1.4	%		474		1.7	%
Cascade Aerospace	Manufacturing		1		3,884		1.3	%		231		0.9	%
Chiquita	Food Processing		1		3,819		1.3	%		335		1.2	%
Securus Technologies	Corporate Headquarters		1		3,742		1.3	%		154		0.6	%
Tractor Supply Co.	General Merchandise		14		3,604		1.2	%		281		1.0	%
Total Top 20 Brands			265	$	95,989		33.3	%		6,416		23.5	%

^*	Subject to a master lease.

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

¹	Brand includes one BEF Foods, Inc property and 23 Bob Evans Restaurants, LLC properties.

Diversification by Industry

Industry	ABR as a % of Total Portfolio
Healthcare Facilities		15.8	%
Restaurants		15.8	%
Food Distributors		4.4	%
Packaged Foods & Meats		3.9	%
Auto Parts & Equipment		3.5	%
Metal & Glass Containers		3.3	%
Specialized Consumer Services		3.3	%
Healthcare Services		2.8	%
Home Furnishing Retail		2.8	%
Aerospace & Defense		2.6	%
Distributors		2.4	%
Electronic Components		2.3	%
Air Freight & Logistics		2.2	%
Specialty Stores		2.2	%
Industrial Machinery		1.9	%
Top 15 Tenant Industries		69.2	%
Other (39 industries)		30.8	%
Total		100.0	%

Diversification by Geography

State	# Properties		ABR ($'000s)		ABR as a % of Total Portfolio			Square Feet ('000s)		SF as a % of Total Portfolio			State	# Properties		ABR ($'000s)		ABR as a % of Total Portfolio			Square Feet ('000s)		SF as a % of Total Portfolio
TX		53	$	30,167		10.5	%		3,141		11.5	%	VA		13	$	4,351		1.5	%		110		0.4	%
IL		26		18,207		6.3	%		1,981		7.2	%	WA		15		4,115		1.4	%		150		0.6	%
CA		11		15,564		5.4	%		1,554		5.7	%	MO		9		3,882		1.3	%		733		2.7	%
WI		32		15,447		5.4	%		1,611		5.9	%	KY		17		3,446		1.2	%		176		0.6	%
FL		46		15,190		5.3	%		792		2.9	%	LA		3		3,122		1.1	%		175		0.6	%
MI		35		14,413		5.0	%		1,439		5.3	%	NE		6		2,958		1.0	%		509		1.9	%
OH		35		14,024		4.9	%		1,369		5.0	%	MD		4		2,856		1.0	%		293		1.1	%
IN		29		12,385		4.3	%		1,738		6.4	%	NM		8		2,730		0.9	%		96		0.4	%
NC		28		10,607		3.7	%		1,139		4.2	%	IA		4		2,644		0.9	%		622		2.3	%
MA		4		9,551		3.3	%		1,009		3.7	%	SC		11		2,435		0.8	%		289		1.1	%
PA		16		9,372		3.3	%		1,071		3.9	%	UT		3		2,289		0.8	%		280		1.0	%
MN		20		9,075		3.2	%		1,225		4.5	%	MS		3		1,866		0.6	%		258		0.9	%
NY		15		9,048		3.1	%		572		2.1	%	CT		2		1,648		0.6	%		55		0.2	%
TN		37		9,029		3.1	%		372		1.4	%	WV		8		1,630		0.6	%		36		0.1	%
AZ		8		8,434		2.9	%		761		2.8	%	MT		7		1,526		0.5	%		43		0.2	%
AL		45		7,725		2.7	%		177		0.6	%	CO		3		1,434		0.5	%		94		0.3	%
AR		10		7,117		2.5	%		278		1.0	%	NV		2		1,307		0.5	%		81		0.3	%
OK		21		6,923		2.4	%		806		2.9	%	ND		2		923		0.3	%		28		0.1	%
GA		19		5,984		2.1	%		968		3.5	%	DE		3		663		0.2	%		35		0.1	%
KS		10		4,893		1.7	%		639		2.3	%	WY		1		307		0.1	%		21		0.1	%
NJ		3		4,826		1.7	%		366		1.3	%	Total US		627	$	284,113		98.6	%		27,092		99.1	%
													Total Canada		1		3,884		1.4	%		231		0.9	%
													Grand Total		628	$	287,997		100.0	%		27,323		100.0	%

As of September 30, 2020, approximately 99.8% of our ~~named executive officers,~~portfolio’s rentable square footage, representing all but six of our properties, was subject to a lease. Because substantially all of our properties are leased under long-term leases, we are not currently required to perform significant ongoing leasing activities on our properties. The leases for two of our properties, representing less than 0.1% of our ABR, will expire during 2020, and ~~began directly employing 71 former employees~~leases for an additional six properties, representing approximately 0.5% of ~~BRE. Our historical results~~our ABR, will expire during 2021 excluding renewal options. During the third quarter of ~~operations through February 7,~~ 2020 ~~include~~we extended the ~~payment~~terms of ~~management fees~~leases with two tenants. As of September 30, 2020, the ABR weighted average remaining term of our leases was approximately 10.8 years. Less than 5% of the properties in our portfolio are subject to leases without at least one renewal option. Approximately 59.1% of our rental revenue was derived from leases that we will expire during 2030 and thereafter, and no ~~longer pay~~more than 9.2% of our rental revenue was derived from leases that expire in any single year prior to 2030. The following ~~the Internalization and do not include the direct compensation expense associated with~~chart sets forth our ~~71 employees, or certain professional fees, consulting, portfolio servicing costs, and other general and administrative expenses not previously incurred~~lease expirations based upon ~~our externally managed structure. Additional details~~the terms of the ~~Internalization include the following:~~leases in place as of September 30, 2020.

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

~~As consideration in the Internalization, we issued~~ ~~780,893~~ ~~shares of our common stock, 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 assumed debt with a new loan that is guaranteed by Amy L. Tait, ~~our founder and Chairman, and certain members of her family (“Founding Owners”), and repaid the remaining $30.5 million using borrowings from our Revolving Credit Facility~~.

In addition to the consideration paid immediately following the Mergers, the Merger Agreement provides that additional “earnout” consideration of up to an aggregate of up to $75 million (payable in four tranches of $10 million, $15 million, $25 million, and $25 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 our common stock on the principal exchange or securities market (or over-the-counter market) on which our common stock are then traded, following the completion of an IPO, or (b) our adjusted funds from operations per share, prior to the completion of an IPO, are achieved during specified periods of time following the 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 has 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.~~

Expiration Year	# Properties		ABR ($'000s)		ABR as a % of Total Portfolio			Square Feet ('000s)		SF as a % of Total Portfolio
2020		2	$	42		—			157		0.6	%
2021		6		1,546		0.5	%		89		0.3	%
2022		4		3,347		1.2	%		124		0.4	%
2023		8		5,154		1.8	%		538		2.0	%
2024		12		13,629		4.7	%		1,694		6.2	%
2025		19		7,697		2.7	%		682		2.5	%
2026		33		17,985		6.2	%		1,394		5.1	%
2027		30		23,098		8.0	%		2,029		7.4	%
2028		33		26,392		9.2	%		2,708		9.9	%
2029		60		19,020		6.6	%		2,529		9.3	%
2030		89		49,394		17.2	%		5,046		18.5	%
2031		16		5,078		1.8	%		503		1.8	%
2032		36		21,723		7.5	%		2,295		8.4	%
2033		37		15,123		5.3	%		1,635		6.0	%
2034		30		5,358		1.9	%		344		1.3	%
2035		54		17,731		6.2	%		1,959		7.2	%
2036		28		9,588		3.3	%		811		3.0	%
2037		19		14,794		5.1	%		913		3.3	%
2038		32		6,653		2.3	%		303		1.1	%
2039		12		8,974		3.1	%		933		3.4	%
Thereafter		62		15,671		5.4	%		570		2.1	%
Untenanted properties		6		—		—			67		0.2	%
Total		628	$	287,997		100.0	%		27,323		100.0	%

Results of Operations

Overview

As of ~~March 31,~~September 30, 2020, our real estate investment portfolio had a gross asset value of approximately $4.0 billion, consisting of investments in ~~635~~627 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 ~~five~~six of our properties were subject to a lease as of ~~March 31,~~September 30, 2020.

Our historical results of operations for the three months ended March 31, 2020 and March 31, 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 71 employees employed by us following the Internalization or incremental general and administrative expenses.

Lease Revenues, net

For the three months ended

March 31,

Increase/(Decrease)

(in thousands)

2020

2019

$

%

Contractual rental amounts billed for operating leases
and straight-line rent adjustments

$
74,493

$
63,590

$
10,903

17.1
%
Percentage rent income

3

—

3

>100
%
Adjustment to revenue recognized for uncollectible
rental amounts billed

(1,033
)

(440
)

(593
)

(>100
)%
Operating expenses billed to/reimbursed from tenants

3,732

4,275

(543
)

(12.7
)%
Other income from real estate transactions

49

—

49

>100
%
Total lease revenues from operating leases

77,244

67,425

9,819

14.6
%
Earned income from direct financing leases

987

1,005

(18
)

(1.8
)%
Total Lease revenues, net

$
78,231

$
68,430

$
9,801

14.3
%

	For the three months ended										For the nine months ended
	September 30,				Increase/(Decrease)						September 30,						Increase/(Decrease)
(in thousands)	2020		2019		$			%			2020			2019			$			%
Contractual rental amounts billed for operating leases	$	69,270	$	65,579	$	3,691			5.6	%	$	209,440		$	184,292		$	25,148			13.6	%
Adjustment to recognize contractual operating lease billings on a straight-line basis		6,768		5,575		1,193			21.4	%		16,709			16,015			694			4.3	%
Variable rental amounts earned		234		—		234			>100.0	%		308			—			308			>100.0	%
Earned income from direct financing leases		757		1,005		(248	)		(24.7	)%		2,599			3,014			(415	)		(13.8	)%
Operating expenses billed to tenants		3,389		3,811		(422	)		(11.1	)%		11,456			10,572			884			8.4	%
Other income from real estate transactions		64		431		(367	)		(85.2	)%		795			431			364			84.5	%
Adjustment to revenue recognized for uncollectible rental amounts billed		262		—		262			>100.0	%		(1,961	)		(440	)		(1,521	)		>(100.0	)%
Total Lease revenues, net	$	80,744	$	76,401	$	4,343			5.7	%	$	239,346		$	213,884		$	25,462			11.9	%

The increase in Lease revenues, net for the three and nine months ended ~~March 31,~~September 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.~~2019. In 2019, we significantly increased the size of our portfolio, adding 74 new properties at ~~a price~~an aggregate cost of approximately $1.0 billion, excluding capitalized acquisition costs. ~~During~~Our acquisitions were largely weighted towards the ~~three months ended March 31,~~second half of the year, with the closing of a $735.7 million industrial and office portfolio in August. As of September 30, 2020, ~~we experienced approximately 98% rent collection and 99.5% occupancy~~our portfolio was 99.8% occupied (based on rentable square footage)~~. As of March 31, 2020, the~~, with ABR weighted average annual rent increases ~~on our properties was~~of 2.1%.

Operating Expenses

	For the three months ended										For the three months ended										For the nine months ended
	March 31,				Increase/(Decrease)						September 30,				Increase/(Decrease)						September 30,				Increase/(Decrease)
(in thousands)	2020		2019		$			%			2020		2019		$			%			2020		2019		$			%
Operating expenses
Depreciation and amortization	$	31,219	$	24,310	$	6,909			28.4	%	$	31,363	$	28,392	$	2,971			10.5	%	$	102,503	$	77,989	$	24,514			31.4	%
Asset management fees		2,461		5,120		(2,659	)		(51.9	)%		—		5,610		(5,610	)		(100.0	)%		2,461		16,048		(13,587	)		(84.7	)%
Property management fees		1,275		1,885		(610	)		(32.4	)%		—		2,098		(2,098	)		(100.0	)%		1,275		5,918		(4,643	)		(78.5	)%
Property and operating expense		4,115		4,390		(275	)		(6.3	)%		4,187		3,855		332			8.6	%		12,492		11,497		995			8.7	%
General and administrative		5,842		1,103		4,739		>100		%		7,214		1,315		5,899			>100.0	%		18,756		3,807		14,949			>100.0	%
Provision for impairment of investment in rental properties		2,133		1,017		1,116		>100		%		14,732		2,435		12,297			>100.0	%		17,399		3,452		13,947			>100.0	%
Total operating expenses	$	47,045	$	37,825	$	9,220			24.4	%	$	57,496	$	43,705	$	13,791			31.6	%	$	154,886	$	118,711	$	36,175			30.5	%

Depreciation and amortization

The increase in depreciation and amortization expense for the three and nine months ended ~~March 31,~~September 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~~Determined Share Value established by our board of ~~directors (“Determined Share Value”).~~directors. 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~~associated with our ~~employment of approximately 71 employees. At such time,~~newly acquired employee base. Following the Internalization, our asset and property management fees were replaced with compensation and related expenses, which totaled ~~$2.8~~$4.6 million and $11.3 million during the three and nine months ended ~~March 31,~~September 30, 2020, respectively, along with associated general and administrative expenses. ~~During~~We are achieving costs savings from our internalized structure, as the increase in general and administrative expenses is less than the combined decrease in asset management, property management, and disposition fees incurred during the three and nine months ended ~~March 31,~~September 30, 2020 ~~we also incurred $0.9 million in incremental legal fees associated with general corporate matters that were not incurred in the comparable~~under our prior ~~period.~~externally managed structure.

Provision for impairment of investment in rental properties

During the three and nine months ended ~~March 31,~~September 30, 2020, we recognized ~~$2.1~~$14.7 million and $17.4 million, respectively, of impairment on our investments in rental ~~properties. We review long-lived assets~~properties, compared to ~~be held~~$2.4 million and ~~used~~$3.5 million during the three and nine months ended September 30, 2019, respectively. The following table presents the impairment charges 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. respective periods:

	For the three months ended				For the nine months ended
	September 30,				September 30,
(in thousands, except number of properties)	2020		2019		2020		2019
Number of properties		3		3		6		4
Carrying value prior to impairment charge	$	27,229	$	12,884	$	51,445	$	15,901
Fair value		12,497		10,449		34,046		12,449
Impairment charge	$	14,732	$	2,435	$	17,399	$	3,452

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 three months ended												For the nine months ended
	March 31,						Increase/(Decrease)						September 30,						Increase/(Decrease)						September 30,						Increase/(Decrease)
(in thousands)	2020			2019			$			%			2020			2019			$			%			2020			2019			$			%
Other income (expenses)
Interest income	$	9		$	1		$	8		>100		%	$	—		$	5		$	(5	)		(100.0	)%	$	20		$	6		$	14			>100.0	%
Interest expense		(20,991	)		(15,828	)		5,163			32.6	%		(18,511	)		(18,465	)		46			0.2	%		(59,015	)		(51,025	)		7,990			15.7	%
Cost of debt extinguishment		(22	)		(713	)		(691	)		(96.9	)%		(392	)		(455	)		(63	)		(13.8	)%		(414	)		(1,176	)		(762	)		(64.8	)%
Gain on sale of real estate		7,619			1,400			6,219		>100		%		1,060			12,585			(11,525	)		(91.6	)%		9,725			16,772			(7,047	)		(42.0	)%
Income taxes		(549	)		(443	)		106			23.9	%		(129	)		(405	)		(276	)		(68.1	)%		(1,080	)		(1,153	)		(73	)		(6.3	)%
Internalization expenses		(1,205	)		—			1,205		>100		%		(1,929	)		(923	)		1,006			>100.0	%		(3,523	)		(1,195	)		2,328			>100.0	%
Change in fair value of earnout liability		(4,177	)		—			4,177		>100		%		6,362			—			6,362			>100.0	%		8,506			—			8,506			>100.0	%
Other losses		(22	)		—			22		>100		%
Other gains (losses)														2			—			2			>100.0	%		(22	)		—			(22	)		>(100.0	)%

Interest expense

~~The increased~~Increased interest expense during the three and nine months ended ~~March 31,~~September 30, 2020, ~~resulted primarily from an increase in average outstanding borrowings~~ as compared to the three and nine months ended ~~March 31,~~September 30, 2019, ~~due mainly~~reflects increased average outstanding borrowings in the comparable periods. We incurred incremental revolver and term loan borrowings in August 2019 to ~~the incurrence of indebtedness associated with~~fund a significant acquisition and in ~~the third quarter of 2019, and incremental borrowings associated~~February 2020 in connection with the ~~Internalization, partially offset by~~Internalization. These borrowings were unhedged and bore interest at a ~~61 basis point decrease~~variable rate based on LIBOR, which decreased from 1.76% at December 31, 2019 to 0.15% at September 30, 2020. As a result, we benefited from declining interest rates during the period of time they were outstanding. The borrowings were fully repaid in September 2020 with proceeds from our ~~weighted average cost~~IPO. As of ~~debt, inclusive~~September 30, 2020, approximately $110.0 million of our interest rate swaps. We were able to take advantage of the decreasing interest rates since March 31, 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%.borrowings remain unhedged.

Gain on sale of real estate

Our recognition of a gain or loss on the sale of real estate varies from transaction to transaction based on fluctuations in asset prices and demand in the real estate market.During the three months ended ~~March 31,~~September 30, 2020, we recognized gains of ~~$7.6~~$1.1 million on the sale of 10five properties, compared to gains of ~~$1.4~~$12.6 million on the sale of ~~four~~16 properties during the three months ended ~~March 31,~~September 30, 2019. During the nine months ended September 30, 2020, we recognized gains of $9.7 million on the sale of 18 properties, compared to gains of $16.8 million on the sale of 25 properties during the nine months ended September 30, 2019.

Internalization expenses

During the three and nine months ended ~~March 31,~~September 30, 2020, we incurred ~~$1.2~~$1.9 million and $3.5 million, respectively, of third-party fees and consulting expenses associated with the Internalization, ~~that closed on February 7, 2020.~~compared to $0.9 million and $1.2 million of such expenses during three and nine months ended September 30, 2019, respectively. We expect any 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. To the extent the change in fair value relates to a portion of the earnout consideration that is classified as a liability, we record the change through earnings. We estimate the fair value of the earnout liability by considering weighted-average probabilities of likely outcomes, and using a Monte Carlo simulation and discounted cash flow analysis to estimate fair value. These estimates require 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~~ The change in the fair value of the ~~Internalization, we recorded an~~ earnout liability ~~of $40.1 million through our preliminary purchase~~during the three and nine months ended September 30, 2020, reflects the IPO stock price ~~allocation, which increased to $44.3 million as of March 31, 2020. The increase in fair value between February 7, 2020~~ and ~~March 31, 2020 is primarily a result of an increase~~changes in the peer stock price volatility assumption, ~~used, as detailed in Note 2~~which is attributable to ~~the Condensed Consolidated Financial Statements above, a direct result of~~ changes in economic circumstances impacting global equity markets.

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

~~Our reported results and net~~Net earnings per diluted share ~~are presented~~

	For the three months ended										For the nine months ended
	September 30,				Increase/(Decrease)						September 30,				Increase/(Decrease)
(in thousands, except per share data)	2020		2019		$			%			2020		2019		$			%
Net income	$	9,711	$	25,038	$	(15,327	)		(61.2	)%	$	38,657	$	57,402	$	(18,745	)		(32.7	)%
Net earnings per diluted share		0.08		0.24		(0.16	)		(66.7	)%		0.32		0.57		(0.25	)		(43.9	)%

The decrease 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 or back-loading of payments, or significant rent-free periods. Therefore, we find it useful to evaluate rent on a contractual basis as it allows for comparison of existing rental rates to market rental rates. We further exclude 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.

For the three months ended

March 31,

Increase/(Decrease)

(in thousands, except per share data)

2020

2019

$

%

Net income

$
11,848

$
15,022

$
(3,174
)

(21.1
)%
Net earnings per diluted share

0.41

0.62

(0.21
)

(33.9
)%
FFO

37,572

38,949

(1,377
)

(3.5
)%
FFO per diluted share

1.29

1.62

(0.33
)

(20.4
)%
AFFO

41,068

34,169

6,899

20.2
%
AFFO per diluted share

1.41

1.42

(0.01
)

(0.7
)%
Diluted WASO^(a)

29,053

24,072

4,981

20.7
%

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

~~Net income~~

~~For~~ the three months ended ~~March 31,~~September 30, 2020, as compared to the three months ended ~~March 31,~~September 30, 2019, ~~net income decreased~~is primarily due to a ~~$6.9~~$12.3 million increase in impairment charges, an $11.5 million decrease in gains on sale of real estate, and a $3.0 million increase in depreciation and amortization expense associated with a larger real estate portfolio, a $5.2 million increase in interest expense associated with incremental borrowings used to partially fund our real estate acquisitions and the Internalization, a $4.2 million increase in the fair value of our earnout liability, $1.2 million in internalization expenses incurred in 2020, and a $1.1 million increase in provisions for impairment.portfolio. These factors were partially offset by revenue growth of ~~$9.8~~$4.3 million ~~combined~~and a $6.4 million decrease in the fair value of our earnout liability in 2020 with no comparable adjustment in the prior year. In addition, as a ~~$6.2~~result of the Internalization, increased general and administrative expenses of $5.9 million were offset by $7.7 million lower asset management and property management fees. The decrease in net income for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019, is primarily due to a $24.5 million increase in depreciation and amortization expense, a $13.9 million increase in impairment charges, an $8.0 million increase in interest expense, a $7.0 million decrease in gains on sale of real ~~estate.~~estate, and a $2.3 million increase in internalization expenses. These factors were partially offset by revenue growth of $25.5 million and a $8.5 million decrease in 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 $14.9 million were offset by $18.2 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-over-period comparisons. These fluctuations, combined with ~~increased general and administrative expenses and~~ the increase in our weighted average shares outstanding resulting from continued equity raises associated with our deleveraging plans subsequent to a significant acquisition in the third quarter of 2019 and the common shares and OP Units issued in conjunction with the IPO and Internalization, contributed to the ~~$0.21~~$0.16 decrease in net earnings per diluted share for the three months ended ~~March 31, 2020.~~

~~AFFO~~

~~The increase in AFFO during~~September 30, 2020 and the three months ended March 31, 2020, as compared to the three months ended March 31, 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 a $3.3 million$0.25 decrease in asset and property management fees as a result of terminating the associated agreements in connection with the Internalization. These factors were partially offset by a $4.7 million increase in general and administrative expense related to incremental compensation and related costs associated with an internalized management structure, and a $5.2 million increase in interest expense associated with incremental borrowings.

~~The $0.01 decrease in AFFO~~net earnings per diluted share ~~was primarily due to~~for the short-term dilution caused by the immediate increase in BNL’s weighted average shares outstanding resulting from the consideration paid in conjunction with the Internalization. Upon consummation of the transaction in February, BNL began recognizing cash flow and AFFO benefits due to the immediate cost savings achieved by operating the REIT with an internalized management structure, as compared to the recurring management fees and transaction-based fees incurred under its previous externally-managed structure. Although the full dilutive effect of shares outstanding was recognized at the time of the transaction, we expect the continued cost savings to be substantial and to translate into accretive results on a per share basis over time as the cash flow and AFFO benefits are recognized. Further, we expect this accretion will continue to increase as we grow our portfolio and recognize economies of scale.

~~Reconciliation of Non-GAAP Measures~~nine months ended September 30, 2020.

~~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

(in thousands, except per share data)

March 31,

2020

2019

Net income

$
11,848

$
15,022

Real property depreciation and amortization

31,210

24,310

Gain on sale of real estate

(7,619
)

(1,400
)
Provision for impairment on investment in rental properties

2,133

1,017

FFO

$
37,572

$
38,949

Capital improvements / reserves

—

(49
)
Straight-line rent adjustment

(1,612
)

(5,143
)
Adjustment to provision for credit losses

(17
)

—

Cost of debt extinguishment

22

713

Amortization of debt issuance costs

888

553

Amortization of net mortgage premiums

(35
)

(35
)
Gain on interest rate swaps and other non-cash interest expense

(42
)

(81
)
Amortization of lease intangibles

(1,138
)

(738
)
Internalization expenses

1,205

—

Severance

26

—

Change in fair value of earnout liability

4,177

—

Other losses

22

—

AFFO

$
41,068

$
34,169

Diluted WASO

29,053

24,072

Net earnings per share, basic and diluted

$
0.41

$
0.62

FFO per diluted share

1.29

1.62

AFFO per diluted share

1.41

1.42

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 was reaffirmed in July 2020. We manage our leverage profile using a ratio of Net Debt to Annualized Adjusted EBITDAre, a non-GAAP financial measure, which we believe is a useful measure of our ability to repay debt and a relative measure of leverage, and is used in communications with rating agencies regarding our credit rating. We seek to maintain on a sustained basis a Net Debt to Annualized Adjusted EBITDAre ratio that is generally less than 6.0x. As of ~~March 31,~~September 30, 2020, we had total debt outstanding of $1,549.1 million and a Net Debt to Annualized Adjusted EBITDAre ratio of approximately 5.20x.

Net Debt and Annualized Adjusted EBITDAre are non-GAAP financial measures, and Annualized Adjusted EBITDAre is calculated based upon EBITDA, EBITDAre, and Adjusted EBITDAre, each of which is also a non-GAAP financial measure. Refer to Non-GAAP Measures below for further details concerning our ~~leverage ratio was 45.7%~~calculation of non-GAAP measures and reconciliations to the ~~approximate market value of our assets, compared to 45.8% as of December 31, 2019.~~comparable GAAP measure.

Liquidity/REIT Requirements

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

Short-term Liquidity Requirements

Our short-term liquidity requirements consist primarily of funds necessary to pay for our operating expenses, including our general and administrative expenses as well as interest payments on our outstanding debt, and to pay distributions. ~~Since our portfolio has a strong occupancy level and substantially all of our leases are net leases, we~~We do not currently anticipate making significant capital expenditures or incurring other significant property ~~costs.~~costs because of the strong occupancy levels across our portfolio and the nature of our leases. We expect to meet our short-term liquidity requirements primarily from cash and cash equivalents balances and net cash provided by operating activities, ~~and borrowing~~supplemented by borrowings under our Revolving Credit Facility. Additionally, our $240 million 2020 Unsecured Term Loan matures in August 2020, at which time we have the option to extend the loan twice, each for a period of six months, 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 gave notice that we were exercising the first six-month option, effective August 2, 2020. Refer to ~~Recent Developments – COVID-19 Pandemic~~ ~~for additional discussion regarding the pandemic’s impact to our liquidity profile.~~

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. Further, we anticipate access to the public unsecured bond market, which was historically largely unavailable to us, following our IPO.

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

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 629 unencumbered properties and approximately $110.8 million of mortgage debt on the remaining properties. ~~Refer to~~ ~~Recent Developments – COVID-19 Pandemic~~ ~~for additional discussion regarding the pandemic’s impact to our liquidity profile.~~

Equity Capital Resources

~~Equity~~On September 21, 2020, we completed our IPO and issued 33.5 million shares of stock for net proceeds of $532.3 million. We used $216.5 million of the net proceeds to fully repay the outstanding borrowings and accrued interest under our then existing revolving credit agreement and $240.2 million of the proceeds to fully repay the outstanding principal and accrued interest associated with an unsecured term loan. Subsequent to quarter end, on October 20, 2020, we received an additional $55.9 million in net proceeds as a result of the exercise in part by the underwriters of the IPO of their option to purchase additional shares at the IPO price of $17.00 per share.

Prior to the IPO, equity capital for our real estate acquisition activity ~~has historically been~~was provided ~~from the~~by proceeds offrom 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.~~2020. Accordingly, we did not raise any equity through our private offering during the first ~~quarter.~~nine months of 2020. During the ~~three~~nine months ended ~~March 31,~~September 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 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 March 31,~~at September 30, 2020.

(in thousands, except interest rates)

Outstanding
Balance

Interest
Rate

Maturity
Date
2020 Unsecured Term Loan

$
240,000

one-month LIBOR + 1.25%

Aug. 2020
Unsecured Revolving Credit and Term
Loan Agreement

Revolving Credit Facility

353,300

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

808,300

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

2,033,300

Debt issuance costs, net

(7,413
)

$
2,025,887

~~2020 Unsecured Term Loan~~

The 2020 Unsecured Term loan has 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 March 31, 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. On May 5, 2020, we gave notice that we were exercising the first of these options, effective as of August 2, 2020.

~~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 March 31, 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 March 31, 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 March 31, 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 March 31, 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 had been assumed by the Company 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 March 31, 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 March 31, 2020.

(in thousands, except interest rates)

Outstanding

Balance

Interest

Rate

Maturity

Date

Revolving Credit Facility

—

one-month LIBOR + 1.20%

Sept. 2023

2022 Unsecured Term Loan

60,000

one-month LIBOR + 1.25%

Feb. 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

2026 Unsecured Term Loan

450,000

one-month LIBOR + 1.85%

Feb. 2026

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.

Series A ~~Notes~~

~~The Series A Notes are payable interest only semiannually during their term, bear interest at a fixed rate of~~

150,000

4.84% ~~per annum, and mature on April 18, 2027.~~

Apr. 2027

Series B ~~and~~

225,000

5.09%

Jul. 2028

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~~

100,000

5.19% ~~per annum, respectively. The Series B Notes mature on July 2, 2028, and the Series C Notes mature on July 2, 2030.~~

Jul. 2030

475,000

Total

1,440,000

Debt ~~Covenants~~issuance costs, net

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 March 31, 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 over the pandemic’s impact on our ability to satisfy our financial covenants.~~

~~Covenants~~

(6,505

)

1,433,495

~~Required~~

~~Actual~~

~~(as of~~

~~March 31, 2020)~~

~~Leverage Ratio~~^(a)

≤ ~~0.60 to 1.00~~

~~0.54~~

~~Secured Indebtedness Ratio~~^(b)

≤ ~~0.40 to 1.00~~

~~0.03~~

~~Unencumbered Coverage Ratio~~^(c)

≥ ~~1.75 to 1.00~~

~~3.54~~

~~Fixed Charge Coverage Ratio~~^(d)

~~≥ 1.50 to 1.00~~

~~2.81~~

~~Total Unsecured Indebtedness to Total~~

~~Unencumbered Eligible Property Value~~^(e)

~~≤ 0.60 to 1.00~~

~~0.59~~

~~Dividends and Other Restricted Payments~~

~~Only applicable in case of default~~

~~Not Applicable~~

Revolving Credit Facility

In connection with the IPO, in September 2020 we replaced our prior $600.0 million revolving credit facility with the $900.0 million Revolving Credit Facility that includes $20.0 million available for issuance of letters of credit. The Revolving Credit Facility has an initial maturity date of September 2023 and provides for two six-month extensions, at our election, subject to certain conditions set forth in the agreement and payment of a 0.0625% fee on the revolving commitments. The Revolving Credit Facility contains an applicable facility fee ranging between 0.125% and 0.30% per annum, based on our credit rating. Based on our current credit rating of Baa3, the facility fee is 0.25% per annum as of September 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 September 30, 2020.

2022 Unsecured Term Loan

We entered into the 2022 Unsecured Term Loan 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 September 30, 2020.

2023 Unsecured Term Loan

2024 Unsecured Term Loan

^(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 are 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 $96.7 million and $13.2 million at March 31, 2020 and 2019, respectively. The table below shows information concerning cash flows for the three months ended March 31, 2020 and 2019:

2026 Unsecured Term Loan

Senior Notes

To mitigate interest rate risk and extend the tenor of a portion of our debt, 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.

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, which are summarized below. As of September 30, 2020, we believe we were in compliance with all of our covenants on all outstanding borrowings. In the event of default, either through default on payments or breach of covenants, we may be restricted from paying dividends to our stockholders in excess of dividends required to maintain our REIT qualification. For each of the previous three years, we paid dividends out of our cash flows from operations in excess of the distribution amounts required to maintain our REIT qualification. Refer to Recent Developments – COVID-19 Pandemic for additional discussion of the pandemic’s impact on our ability to satisfy our financial covenants.

For the three months ended

March 31,

(In thousands)

2020

2019

Net cash provided by operating activities

$
40,319

$
31,639

Net cash provided by (used in) investing activities

4,474

(64,637
)
Net cash provided by financing activities

31,608

27,169

Increase (decrease) in cash and cash equivalents and restricted cash

$
76,401

$
(5,829
)

~~The increase in net cash provided by operating activities during the three months ended March 31, 2020 as compared~~Covenants

Requirement

Leverage Ratio

≤ 0.60 to ~~the three months ended March 31, 2019, was mainly due~~1.00

Secured Indebtedness Ratio

≤ 0.40 to ~~growth in our real estate portfolio.~~1.00

The change in net cash provided by investing activities during the three months ended March 31, 2020 as compared to the three months ended March 31, 2019, was mainly due to decreased acquisition volume and increased proceeds from the disposal of properties, offset by cash paid in connection with the Internalization.Unencumbered Coverage Ratio

The increase in net cash provided by financing activities during the three months ended March 31, 2020 as compared to the three months ended March 31, 2019, mainly reflects a net increase in borrowings (as discussed in ~~Liquidity~~ ~~above), partially offset by 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 11.3 years as of March 31, 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 March 31, 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 16.0% of our ABR as of March 31, 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 March 31, 2020, or December 31, 2019.~~

~~Contractual Obligations~~

~~The following table provides information with respect to our contractual commitments and obligations as of March 31, 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

$
—

$
—

$
—

$
2,401

$
58,412

$
2,219

$
534

$
63,566

2021

240,000

—

—

18,006

72,049

—

711

330,766

2022

60,000

353,300

—

2,907

60,773

—

686

477,666

2023

265,000

—

—

8,332

53,562

—

505

327,399

2024

190,000

—

—

2,260

49,454

—

120

241,834

Thereafter

450,000

—

475,000

76,912

122,555

—

2,411

1,126,878

Total

$
1,205,000

$
353,300

$
475,000

$
110,818

$
416,805

$
2,219

$
4,967

$
2,568,109

^(a)

Subsequent to quarter end, we gave notice that we were exercising the first of two six-month options to extend the maturity date of the 2020 Unsecured Term Loan, effective as of August 2, 2020, to February 2, 2021. Accordingly, we have included principal repayment of this loan in 2021.

≥ 1.75 to 1.00

^(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.~~
Fixed Charge Coverage Ratio		≥ 1.50 to 1.00

^(c)	~~Interest expense is projected based on the outstanding borrowings and interest rates in effect as of March 31, 2020. This amount includes the impact of interest rate swap agreements.~~
Total Unsecured Indebtedness to Total Unencumbered Eligible Property Value		≤ 0.60 to 1.00

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

~~At March 31, 2020~~Dividends and ~~December 31, 2019, investment~~Other Restricted Payments

Only applicable in ~~rental property of $176.8 million and $178.7 million, 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 March 31, 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.default

~~Critical Accounting Policies~~

This Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our Condensed Consolidated Financial Statements, which have been prepared in accordance with GAAP. The preparation of these Condensed Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses as well as other disclosures in the financial statements. On an ongoing basis, management evaluates its estimates and assumptions; however, actual results may differ from these estimates and assumptions, which in turn could have a material impact on our financial statements. A summary of our significant accounting policies and procedures are included in Note 2, “Summary of Significant Accounting Policies,” in the Notes to the Condensed Consolidated Financial Statements included in this

Quarterly Report on Form 10-Q. We believe there have been no significant changes during the three months ended March 31, 2020, to the items that we disclosed as our critical accounting policies in our 2019 Annual report on Form 10-K.

~~Impact of Recent Accounting Pronouncements~~

~~For information on the impact of recent accounting pronouncements on our business, see Note 2 of the Notes to the Condensed Consolidated Financial Statements included in this 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”) 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 until further notice and terminated our dividend reinvestment plan (“DRIP”) and share redemption program as of February 10, 2020.

At its May 7, 2020, meeting, our board of directors voted to set the DSV at $82.00 per share until July 31, 2020, compared to the prior DSV of $85 per share. The Company’s NAV calculation as of March 31, 2020 was consistently calculated using the Company’s 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 our review of market capitalization rates. The Company did not adjust the values of its real estate assets to estimate any potential impact from the COVID-19 pandemic on its portfolio as of March 31, 2020.

The decline in the Company’s NAV during the first quarter was due to a decrease in the estimated value of the Company’s real estate investments (driven mainly by downward adjustments to fair value associated with properties leased to our largest tenant, who declared bankruptcy in March, and current quarter disposition activity), combined with a decline in market interest rates during the first quarter, which led to an increase in our estimated fair value of debt (and a corresponding decline in NAV). Additional information regarding our valuation policy and procedures, including significant assumptions used to value our real estate portfolio and corresponding sensitivity disclosures, 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

NAV per
diluted share

Determined
Share Value

May 1, 2020 - July 31, 2020

March 31, 2020

$
82.46

$
82.00

February 1, 2020 - April 30, 2020

December 31, 2019

$
85.21

$
85.00

November 1, 2019 - January 31, 2020

September 30, 2019

$
84.12

$
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):~~

(in thousands, except per share amounts)
NAV as of:

March 31,
2020

December 31,
2019

Investment in rental property

$
4,344,570

$
4,427,567

Debt

(2,233,159
)

(2,047,860
)
Other assets and liabilities, net

355,113

(16,149
)
NAV

$
2,466,524

$
2,363,558

Number of outstanding shares, including noncontrolling interests

29,912

27,738

NAV per diluted share

$
82.46

$
85.21

Cash Flows

Cash and cash equivalents and restricted cash totaled $109.0 million and $44.1 million at September 30, 2020 and 2019, respectively. The table below shows information concerning cash flows for the nine months ended September 30, 2020 and 2019:

	For the nine months ended
	September 30,
(In thousands)	2020			2019
Net cash provided by operating activities	$	132,964		$	110,933
Net cash provided by (used in) investing activities		16,207			(870,227	)
Net cash (used in) provided by financing activities		(60,495	)		784,420
Increase in cash and cash equivalents and restricted cash	$	88,676		$	25,126

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

The change in net cash (used in) provided by financing activities during the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019, mainly reflects a net repayment of debt in 2020, compared to net borrowings in 2019, partially offset by increased proceeds from the sale of common stock.

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, based on our strong collection results and second quarter 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. The board set a $0.135 distribution per common share and OP Unit to stockholders and OP Unit holders of record as of September 30, 2020, which was paid on October 15, 2020. At its November 5, 2020 meeting, the board set a $0.25 distribution per common share and OP Unit to stockholders and OP Unit holders of record as of December 31, 2020, payable on or before January 15, 2021.

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 nine months ended September 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		—		—		—		—		—
July	2020		—		—		—		—		—
August	2020		—		—		—		—		—
September^(b)	2020		—		—		—		—		—
Total		$	52,581	$	5,431	$	5,734	$	133	$	63,879

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 March 31, 2020, and December 31, 2019, supporting the Determined Share Value in effect for the periods of May 1, 2020 through July 31, 2020, and February 1, 2020, through April 30, 2020, respectively:^(a)

Market capitalization rates, as of:

Industrial

Healthcare

Restaurant

Office

Retail

Other

Portfolio
Total

March 31, 2020

6.75
%

6.73
%

6.09
%

7.09
%

8.02
%

6.32
%

6.76
%
December 31, 2019

6.71
%

6.75
%

6.05
%

7.09
%

7.01
%

6.40
%

6.66
%

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 March 31, 2020, of 0.25% would result in a decrease in the fair value of our investment in rental property of 3.6%, and our NAV per diluted share would have been $77.27. Conversely, a decrease in the weighted average implied capitalization rate used as of March 31, 2020, of 0.25% would result in an increase in the fair value of our investment in rental property of 3.8%, and our NAV per diluted share would have been $88.05.

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. Given 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. Given the current economic downturn and significant reduction in real estate transactions, it is likely that we will be unable to obtain or utilize comparable sales data as part of our valuation process for several calendar quarters, which further impedes our ability to conduct accurate valuations. 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. 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~~

At its May 7, 2020 meeting, our board of directors undertook a full review of our rent collection results for April, preliminary collection results for May, our outlook for collections in future months, and our overall liquidity position. Given the economic uncertainty and rapidly evolving circumstances related to the COVID-19 pandemic and current tenant rent relief requests, to preserve cash and strengthen our liquidity position, the board determined that it would temporarily suspend our monthly distribution. The previously announced distribution of $0.44 per common share and OP Unit for the month of April will remain payable on May 15, 2020. The board of directors will re-evaluate whether or not to reinstate a distribution at its August 2020 meeting. In connection with that re-evaluation, the board will consider the impact the COVID-19 pandemic has had on the Company’s results of operations through that time and, based upon the Company’s determination of its progress against its growth initiatives, will also evaluate the appropriate payout ratio and payment frequency for any future distributions. We intend to maintain BNL’s REIT status, and intend to make a special distribution in 2020 if it becomes necessary to do so based on the ultimate decisions with respect to future distributions.

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 three months ended March 31, 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

Total

$
28,950

$
2,741

$
5,734

$
133

$
37,558

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

~~The following table summarizes our distributions~~^(b)

Dividends totaling $20,722 declared for the third quarter of 2020 and payable to stockholders and OP Unit holders of record as of September 30, 2020, were 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.~~on October 15, 2020.

The following table summarizes our distributions paid, including the source of distributions and a comparison against Funds From Operations (“FFO”) (in thousands). Refer to Non-GAAP Measures for further discussion of our FFO.

	For the nine months ended
	September 30,
	2020		2019
Distributions:
Paid in cash	$	58,145	$	51,505
Reinvested in shares		5,734		46,078
Total Distributions	$	63,879	$	97,583
Source of Distributions:
Cash flow from operating activities	$	63,879	$	97,583
FFO	$	148,783	$	122,071

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.

Impact of Inflation

The leases in our portfolio are long-term in nature, with a current ABR weighted average remaining lease term of 10.8 years as of September 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 September 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 15.8% of our ABR as of September 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 September 30, 2020, or December 31, 2019.

Contractual Obligations

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

Year of Maturity	Term Loans		Revolving Credit Facility^(a)		Senior Notes		Mortgages and Notes Payable		Interest Expense^(b)		Tenant Improvement Allowances^(c)		Operating Leases		Total
Remainder of 2020	$	—	$	—	$	—	$	818	$	16,149	$	396	$	176	$	17,539
2021		—		—		—		18,006		63,329		1,585		711		83,631
2022		60,000		—		—		2,907		61,485		—		686		125,078
2023		265,000		—		—		8,173		56,096		—		505		329,774
2024		190,000		—		—		2,260		50,481		—		120		242,861
Thereafter		450,000		—		475,000		76,912		129,228		—		2,411		1,133,551
Total	$	965,000	$	—	$	475,000	$	109,076	$	376,768	$	1,981	$	4,609	$	1,932,434

^(a)

For the three months ended

March 31,

2020

2019

Distributions:

Paid in cash

$
31,824

$
16,419

Reinvested in shares

5,734

14,533

Total Distributions

$
37,558

$
30,952

Source of Distributions:

Cash flow from operating activities

$
37,558

$
30,952

FFO

$
37,572

$
38,949

We ~~intend to fund future distributions from cash generated by operations; however, we~~ may ~~fund distributions from~~extend 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 rates. Increases in interest rates can result in increased interest expense under our~~ Revolving Credit Facility twice, each for a six-month period, subject to certain conditions, including the payment of an extension fee equal to 0.0625% of the revolving commitments.

^(b)

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

~~Our fixed-rate debt~~of September 30, 2020. This amount includes ~~our Senior Notes, mortgages, and variable-rate debt converted to a fixed rate with~~ the ~~use~~impact of interest rate ~~swaps. Our fixed-rate debt and outstanding~~swap agreements.

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

At September 30, 2020 and December 31, 2019, investment in rental property of $174.6 million and $178.7 million, 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 September 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.

Non-GAAP Measures

FFO and AFFO

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

Our leases include cash rents that increase over the term of the lease to compensate us for anticipated increases in market rentals over time. Our leases do not include significant front-loading or back-loading of payments, or significant rent-free periods. Therefore, we find it useful to evaluate rent on a contractual basis as it allows for comparison of existing rental rates to market rental rates. 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 contingent consideration expense (income), costs or gains recorded on the extinguishment of debt, non-cash interest expense and gains, the amortization of debt issuance costs, net mortgage premiums, and lease intangibles, realized gains and losses on foreign currency transactions, internalization expenses, stock-based compensation expense and severance, as these items are not indicative of ongoing operational results. We use AFFO as a measure of our performance when we formulate corporate goals.

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

	For the three months ended						For the nine months ended
	September 30,						September 30,
(in thousands, except per share data)	2020			2019			2020			2019
Net income	$	9,711		$	25,038		$	38,657		$	57,402
Real property depreciation and amortization		31,343			28,392			102,452			77,989
Gain on sale of real estate		(1,060	)		(12,585	)		(9,725	)		(16,772	)
Provision for impairment on investment in rental properties		14,732			2,435			17,399			3,452
FFO	$	54,726		$	43,280		$	148,783		$	122,071
Capital improvements / reserves		1,662			—			1,662			(97	)
Straight-line rent adjustment		(6,943	)		(5,499	)		(14,706	)		(15,882	)
Adjustment to provision for credit losses		(15	)		—			(142	)		—
Cost of debt extinguishment		392			455			414			1,176
Amortization of debt issuance costs		819			611			2,528			1,761
Amortization of net mortgage premiums		(34	)		(37	)		(106	)		(108	)
Gain on interest rate swaps and other non-cash interest expense		(42	)		(41	)		(125	)		(163	)
Amortization of lease intangibles		151			(873	)		32			(2,328	)
Internalization expenses		1,929			923			3,523			1,195
Stock-based compensation		796			—			796			—
Severance		—			—			26			—
Change in fair value of earnout liability		(6,362	)		—			(8,506	)		—
Other losses		(2	)		—			22			—
AFFO	$	47,077		$	38,819		$	134,201		$	107,625

EBITDA, EBITDAre, Adjusted EBITDAre and Annualized Adjusted EBITDAre

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

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

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

	For the three months ended September 30,						For the nine months ended September 30,
(in thousands)	2020			2019			2020			2019
Net income	$	9,711		$	25,038		$	38,657		$	57,402
Depreciation and amortization		31,363			28,392			102,503			77,989
Interest expense		18,511			18,465			59,015			51,025
Income taxes		129			405			1,080			1,153
EBITDA	$	59,714		$	72,300		$	201,255		$	187,569
Provision for impairment of investment in rental properties		14,732			2,435			17,399			3,452
Gain on sale of real estate		(1,060	)		(12,585	)		(9,725	)		(16,772	)
EBITDAre	$	73,386		$	62,150		$	208,929		$	174,249

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

	For the three months ended September 30,
(in thousands)	2020			2019
EBITDAre	$	73,386		$	62,150
Adjustment for current quarter investment activity ^(a)		—			8,898
Adjustment for current quarter disposition activity ^(b)		(78	)		(549	)
Adjustment to exclude non-recurring expenses (income) ^(c)		1,929			923
Adjustment to exclude change in fair value of earnout liability		(6,362	)		—
Adjustment to exclude cost of debt extinguishments		392			455
Adjustment to exclude lease termination fees		—			(407	)
Adjusted EBITDAre	$	69,267		$	71,470
Annualized EBITDAre	$	293,544		$	248,600
Annualized Adjusted EBITDAre	$	277,068		$	285,880

⁽^a⁾

Reflects an adjustment to give effect to all acquisitions during the quarter as if they had ~~carrying values and fair values of approximately $1.6 billion,~~been acquired as of ~~March 31, 2020. Changes in market interest rates impact~~ the ~~fair value~~beginning of ~~our fixed-rate debt and interest rate swaps, but~~the quarter.

⁽^b⁾

Reflects an adjustment to give effect to all dispositions during the quarter as if 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 $85.4 millionhad been sold as of ~~March 31, 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 $1.6 billion as of March 31, 2020, of which $909.9 million was swapped to a fixed rate by our use of interest rate swaps. Taking into account the ~~effect of our interest rate swaps, interest expense would have increased by approximately $1.4 million in the three months ended March 31, 2020, if the applicable LIBOR rate had been 1% higher.~~

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

~~As of March 31, 2020, our financial instruments were not exposed to significant market risk due to foreign currency exchange risk.~~

~~Item 4.~~

~~Controls and Procedures~~

~~Evaluation of Disclosure Controls and Procedures~~

~~We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)~~beginning of the ~~Exchange Act, that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized, and reported within~~quarter.

⁽^c⁾

Amounts represent expense directly associated with the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. As of and for the quarter ended March 31,Internalization.

Net Debt to Annualized EBITDAre and Annualized Adjusted EBITDAre

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

(in thousands)	September 30, 2020			September 30, 2019
Debt
Mortgages and notes payable, net	$	108,752		$	112,562
Unsecured term notes, net		1,433,495			1,671,511
Revolving Credit Facility		—			303,300
Debt issuance costs		6,829			8,862
Gross Debt		1,549,076			2,096,235
Cash and cash equivalents		(101,787	)		(14,008	)
Restricted cash		(7,200	)		(30,107	)
Net Debt	$	1,440,089		$	2,052,120
Net Debt to Annualized EBITDAre	4.91x			8.25x
Net Debt to Annualized Adjusted EBITDAre	5.20x			7.18x

Critical Accounting Policies

Impact of Recent Accounting Pronouncements

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

Item 3.Quantitative and Qualitative Disclosures About Market Risk

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

Our fixed-rate debt includes our Senior Notes, mortgages, and variable-rate debt converted to a fixed rate with the use of interest rate swaps. Our fixed-rate debt and outstanding interest rate swaps had carrying values and fair values of approximately $1.4 billion and $1.6 billion, respectively, as of September 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 $82.6 million as of September 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 $969.8 million as of September 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, interest expense would have increased by approximately $4.5 million in the nine months ended September 30, 2020, if the applicable LIBOR rate had been 1% higher.

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 30, 2020, our financial instruments were not exposed to significant market risk due to foreign currency exchange risk.

Item 4.Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. As of and for the quarter ended September 30, 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

As a result of our Internalization on February 7, 2020, we implemented internal controls over financial reporting to consider the management functions previously performed by our third-party manager. The Internalization represents a material change in internal control over financial reporting subsequent to management’s last assessment of our internal control over financial reporting, which was completed on December 31, 2019.

There have been no ~~other~~ changes in our internal control over financial reporting during the ~~three months~~quarter ended ~~March 31,~~September 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II – ~~OTH~~EROTHER INFORMATION

~~Item 1.~~

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.~~

~~Other than the addition of the text below, there have been no material changes from~~Item 1A. Risk Factors.

The risk factors previously disclosed in the Company’s most recent Annual Report on Form 10-K. See the discussion of the Company’s risk factors under Part I, Item 1A. in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

~~Actual~~relating to or ~~perceived threats associated with epidemics, pandemics or public health crises, including~~impacted by the COVID-19 ~~pandemic, could have a material adverse effect on our results of operations and the businesses of our tenants~~.

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 in the world, including the United States. This outbreak which has since been declared a pandemic by the World Health Organization, has negatively impacted regional and global economic activity and contributed to volatility in financial markets throughout the world. Additionally, in response to the COVID-19 pandemic, many countries and U.S. states, including the areas in which we operate, have adopted certain measures to mitigate the ongoing public health crises. Such measures include “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. The COVID-19 pandemic has negatively impacted nearly every industry directly or indirectly.~~

The COVID-19 pandemic, and future epidemics, pandemics, and other public health crises could materially and adversely affect our and our tenants’ results of operations, liquidity, and ability to access capital markets or pay distributions due to, among other factors:

~~an ongoing~~ reduction in general economic activity, which may cause one or more of our tenants to be unable to maintain profitability and make timely rental payments to us pursuant to their leases, or to declare bankruptcy;

~~an increase in property vacancies could result in our obligation to pay the associated real estate taxes, insurance, and general property operating expenses;~~

~~a continuing complete or partial closure of, or other operational issues at, one or more of our properties resulting from government or tenant action;~~

~~delays in the supply of material products or services to us or our tenants from vendors;~~

~~a reduction in our tenants’ available workforce as a result of local, state or federal “shelter in place” or “stay at home” rules and restrictions;~~

indications of a tenant’s inability to continue as a going concern, changes in our view of strategy relative to a tenant’s business or industry, or changes in our long-term hold strategies, which could be indicative of an impairment triggering event with respect to a particular property or properties;

~~a general decline in business activity and demand for real estate transactions, which could adversely affect our ability to grow our portfolio or sell properties upon desirable terms;~~

~~difficulty accessing debt and equity capital on attractive terms, if at all; and~~

an inability to maintain compliance with financial covenants of credit facility and other loan agreements, which may result in a default of such arrangements and potentially result in an acceleration of indebtedness, or increased interest expense should a waiver be required from the lending institutions.

The extent to which the COVID-19 pandemic impacts our investments and operations will depend on future developments, including, among others, the duration of the outbreak, new information that may emerge concerning the severity of COVID-19, and the actions taken to contain the COVID-19 pandemic or treat the disease. These developments and the full impact of the COVID-19 pandemic on our business are highly uncertain and cannot be predicted with confidence. Nevertheless, the COVID-19 pandemic and any future epidemics, pandemics or public health crises could materially and adversely affect our business, financial condition, liquidity and results of operations, as well as our ability to pay distributions to our stockholders, for the reasons discussed above. In particular, the following risk factorswere previously disclosed in our ~~Annual~~Quarterly Report on Form ~~10-K are updated as follows:~~

The failure of one or more of our tenants to pay rent due to the market disruption caused by the COVID-19 outbreak or any other reason could materially and adversely affect us, including our results of operations.

Our performance depends on the financial condition of our tenants and their ability to fulfill their lease obligations by paying rent in a timely manner. The outbreak has adversely affected our tenants’ businesses generally. As of April 30, 2020, we have received requests10-Q for rent relief from 36.3% of our tenants based on ABR. Although the requests range in scope, the most common request is for a full or partial rent deferment for three months, with repayment over a six to 12-month period following the reinstatement of regular rent payments. In certain cases, we are also negotiating for lease extensions or the early exercise of a tenant renewal option in addition to the repayment of the deferred rent. We have not agreed to any rent forgiveness or permanent abatement and are only negotiating rent deferrals. However, we cannot predict the ultimate resolution of these discussions with our tenants or whether any such negotiations could break down in the future and result in any such tenants refusing to pay all or a substantial portion of the rent due under their leases. The duration of the COVID-19 pandemic and our tenants’ ability to return to business after governmental restrictions are lifted will have a significant impact on our ability to continue to collect rents, and any material disruption in our ability to collect rents could have a material adverse impact on our business and results of operations.

General economic disruption resulting from the COVID-19 pandemic could result in a reduction in the willingness or ability of consumers to use their discretionary income in the businesses of our tenants and potential tenants, which could reduce the demand for our properties and in turn could materially and adversely affect us.

A significant portion of our portfolio is leased to tenants operating businesses at our properties that rely on discretionary consumer spending. Restaurants (including quick service and casual and family dining) represent a material portion of our portfolio and the highest proportion of tenants seeking rent relief at this time are in the restaurant sector. Red Lobster Hospitality, Jack’s Family Restaurants, Outback Steakhouse, and Krispy Kreme are among the most significant tenants in our portfolio. The success of most of these businesses depends on the willingness of consumers to use discretionary income to purchase their products or services. A downturn in the economy resulting from the COVID-19 pandemic could cause consumers to reduce their discretionary spending, which could result in tenant bankruptcies or otherwise have an adverse impact on our tenants’ ability to successfully manage their businesses and pay us amounts due under our lease agreements, thereby materially and adversely affecting us.

More generally, if the pandemic results in a period of economic slowdown, rising interest rates and declining demand for real estate, then it may cause a general decline in rents or an increased incidence of defaults under existing leases. A lack of demand for rental space could adversely affect our ability to maintain our current tenants and gain new tenants, which may affect our growth and results of operations. Accordingly, a general decline in economic conditions resulting from the COVID-19 pandemic could materially and adversely affect us.

~~Legal restrictions intended to mitigate the impact of COVID-19 could have a particularly adverse impact on the restaurant and retail industries, which may materially and adversely affect us.~~

~~The legal restrictions adopted by many U.S. states~~ to mitigate the ongoing public health crises related to COVID-19, including “shelter in place” and “stay at home” rules, restrictions on travel, and restrictions on the types of businesses that may continue to operate, have had a particularly acute negative economic impact on restaurant and retail businesses throughout the areas in which we operate. As of March 31, 2020, leases representing approximately 15.7% of our ABR were with tenants in the restaurant industry and 9.6% of our ABR were with tenants in the retail industry. Accordingly, decreases in the demand for restaurant and/or retail spaces may have a greater adverse effect on us than if we had fewer investments in these industries. For example, if there is an increase in the number of companies in the restaurant industry that declare bankruptcy, go out of business, or significantly reduce the number of their locations as a result of the pandemic, then we are likely to experience challenges with our restaurant tenants, and may record asset impairments on certain assets as a result of increased credit losses. To the extent that economic conditions continue to deteriorate in the retail and restaurant industries, they are likely to negatively affect market rents for such properties and could materially and adversely affect us.

Decreases in real estate transaction activity resulting from the COVID-19 pandemic may materially inhibit our ability to achieve growth through acquisitions at a rate that is comparable to our historical results, which could materially and adversely affect us.

Although the long-term impact of the COVID-19 pandemic on investment sales markets is currently difficult to predict, the disruption from the pandemic thus far has resulted in a significant decrease in real estate investment sales. Our growth strategy depends significantly on acquiring new properties. Since 2015, our team has acquired more than $500 million of net leased real estate each year, with approximately $1 billion during 2019. The Company did not complete any acquisitions during the three months ended March 31, 2020 contained certain financial-related information which ~~increases the risk of lower overall acquisition activity~~has been updated for the ~~full year given the ongoing impact~~three months ended September 30, 2020 in Part I, Item 2, Management’s Discussion and Analysis of ~~the COVID-19 pandemic. Our ability to grow requires us to identify~~Financial Condition and ~~complete acquisitions that meet our investment criteria. Changes in the volume~~Results of real estate investment sales, or our ability to access acquisition financing, resulting from the COVID-19 pandemic may negatively impact our acquisition opportunities, and if we are unable to achieve growth through acquisitions at a rate that is comparable to our historical results, it could materially and adversely affect us.

The Determined Share Value is not directly derived from any independent valuation or from the value of the existing property portfolio. Investors should use caution in using the Determined Share Value as the current value of shares of our common stock.

Historically, shares of our common stock have been sold by us in a private offering at a price per share equal to what we refer to as the current Determined Share Value, which is established at least quarterly by our Board of Directors based on the net asset value of the portfolio, input from management and third-party consultants, and such other factors as the Board of Directors may, in its sole discretion, determine. Our net assets are primarily comprised of our investment in real property and debt, as well as other assets and liabilities such as cash, interest rate swaps, and accounts payable. The values ascribed to our mortgages and unsecured notes are marked to market each quarter.

The Board of Directors may, and currently does, engage third-party consultants, appraisers, and other real estate or investment professionals to assist in its establishment of the Determined Share Value, but the Board of Directors is not required to do so. As a result, the price of the shares of our common stock may not necessarily bear a direct relationship to our book or asset values or to any other established criteria for valuing issued or outstanding common stock and the actual value of an investor’s investment in shares of our common stock could be substantially more or less than what the stockholder may have paid to purchase the shares.

As with any valuation method, the methods used to determine the Determined Share Value are based upon a number of assumptions, estimates, and judgments that may not be accurate or complete. Our assets are valued based upon appraisal standards and the values of our assets using these methods are not required to be a reflection of market value and will not necessarily result in a reflection of fair value under GAAP. Different parties using different property-specific and general real estate and capital market assumptions, estimates, judgments, and standards could derive different Determined Share Values, which could be significantly different from the Determined Share Values determined by the Board of Directors. Additionally, valuation methods typically utilize historical property-level information. As a result, if a property is subject to an event or circumstances that impact property-level operations, there may be an inherent lag between the occurrence of such event and a correlative adjustment in an affected property’s valuation. Further, estimated values of our properties can change rapidly and significantly due to a variety of factors, including changes in interest rates, credit performance, perceived risk, supply, demand, and actual and projected cash flows. Any such changes could result in a change in Determined Share Value.

Accordingly, the Determined Share Value established as of any given time is not a direct representation or indication that, among other things, (i) a stockholder would be able to realize the full Determined Share Value if he or she attempts to sell their shares, (ii) a stockholder would ultimately realize distributions per share equal to the Determined Share Value upon liquidation of our assets and settlement of our liabilities or upon a sale of our company, (iii) shares of our common stock would trade at the Determined Share Value on a national securities exchange, (iv) a third party would offer the Determined Share Value in an arms-length transaction to purchase all or substantially all of our shares of common stock, or (v) the methodologies used to estimate the Determined Share Value would be acceptable to the requirements of any regulatory agency.

Finally, 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. Given 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. Given the current economic downturn and significant reduction in real estate transactions, it is likely that we will be unable to obtain and/or utilize comparable sales data as part of our valuation process for several calendar quarters, which further impedes our ability to conduct accurate valuations. 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 dateOperations of this ~~filing.~~Quarterly Report on Form 10-Q.

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

Sales of Common Stock and Issuance of OP Units

~~We commenced our private offering~~None.

Awards of Restricted Stock

On August 4, 2020, we entered into restricted stock award agreements for an aggregate of 340,963 shares of Common Stock of the Company (the “2020 Restricted Stock Awards”), which were valued at approximately $7.0 million or $20.50 per common share, with our ~~common stock in 2007.~~named executive officers and certain other key employees. The ~~first closing~~awards were issued under the terms of the 2020 Equity Incentive Plan, and the grants had been approved by the Compensation Committee. The grants to the named executive officers, which were made pursuant to the terms of our ~~private offering occurred~~named executive officers’ employment agreements, included (i) restricted stock grants that vest in substantially equal installments on December 31, 2007, and we conducted additional closings at least once every calendar quarter through December 31, 2019. On January 10, 2020, we announced that we suspended until further notice our private offering of shares of our common stock.

As of March 31, 2020, there were 26.9 million shares of our common stock issued and outstanding, including 0.8 million mezzanine equity common shares, and 3.1 million OP Units issued and outstanding, 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 three months ended March 31, 2020 (in thousands, except year and Determined Share Value amounts).

Month

Year

Common
Shares
Sold

Weighted
Average
Determined
Share
Value —
Common
Shares

Total
Proceeds —
Common
Shares
Sold

Common
Shares
DRIP

Weighted
Average
Determined
Share
Value —
DRIP^(a)

Total
Proceeds —
Common
Share
DRIP^(b)

Total
Proceeds

January

2020

—

$
—

$
—

70

$
83.30

$
5,865

$
5,865

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

^(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~~each of the shares of our common stock set forth in the table above were registered under the Securities Act in reliance upon the exemption from registration under the Securities Act provided by Rule 506(c) under Regulation D promulgated under the Securities Act. Allfirst four anniversaries of the shares of our common stock set forth in the table above were sold to persons each of whom represented to us in writing that 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 quarter ended March 31, 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~~completion of the Internalization, which represents 40% of the total award value for each participant, and (ii) restricted stock grants that vest in substantially equal installments on ~~February 7, 2020, we issued 780,893 shares~~each of ~~our common~~the first three anniversaries of the completion of the Internalization, which represents 60% of the total award value for each participant. The grants to other key employees vest 40% on the first anniversary of the Internalization, 30% on the second anniversary of the Internalization, 20% on the third anniversary of the Internalization, and 10% on the fourth anniversary of the Internalization. The restricted stock award agreements provide that vesting is subject to ~~certain owners of BRE as merger consideration for an aggregate value of $66.4 million.~~

~~In connection~~the executive’s continued employment with the ~~Internalization, on February 7,~~Company through each applicable vesting date, except in the event of the executive’s death or disability, in which case, any unvested portion of the awards will become fully vested. In addition, the restricted stock award agreements provide the executive with rights as a stockholder in respect of the awards’ vested and unvested shares, including the right to vote and the right to dividends. In the event of a termination of the executive’s employment by the Company without “Cause” or by the executive for “Good Reason” within 12 months following a “Change in Control” of the Company (as such terms are defined in the executive’s employment agreement), any unvested portion of the 2020 Restricted Stock Awards will become fully vested at the ~~OP issued 1,319,513 OP Units~~time of such termination, provided that if the 2020 Restricted Stock Awards are unvested at the time of a Change in Control of the Company and are not assumed or substituted for equivalent awards as part of the Change in Control transaction, the 2020 Restricted Stock Awards will become fully vested at the time of the Change in Control transaction. Under the terms of the 2020 Restricted Stock Awards, the Company shall be entitled, at its option and in addition to ~~certain owners~~any other available remedies, to terminate the Shares in respect of ~~BRE as merger consideration for an aggregate value~~the 2020 Restricted Stock Awards (including any vested Shares) if the executive materially violates the terms of ~~$112.2 million.~~ any restrictive covenant agreement between the Company and the executive or if the executive is convicted of a felony against the Company or its affiliates.

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

Use of Proceeds from Initial Public Offering

In September 2020, the Company issued and sold 33,500,000 shares of Class A Common Stock in an IPO, at a public offering price of $17.00 per share and on October 20, 2020 the Company issued and sold an additional 3,500,000 shares of Class A Common Stock pursuant to the partial exercise by the underwriters of their over-allotment option to purchase additional shares at the same public offering price.

The offer and sale of all the shares in the IPO, inclusive of the underwriters' partial exercise of their over-allotment option, were registered under the Securities Act pursuant to a registration statement on Form S-11 (File No. 333-240381), as amended, which was declared effective by the SEC on September 16, 2020. J.P. Morgan Securities LLC, Goldman Sachs & Co. LLC, BMO Capital Markets Corp., Morgan Stanley & Co. LLC, Capital One Securities, Inc. and Truist Securities, Inc. acted as joint book-running managers for the offering. The IPO commenced on September 16, 2020 and terminated upon the closing of the sale of shares to the underwriters pursuant to their partial exercise of their over-allotment option on October 20, 2020. Upon completion of the IPO, inclusive of the underwriters' partial exercise of their over-allotment option, we received approximately $588.2 million in net proceeds, after deducting underwriting discounts and commissions and other offering expenses payable by us of approximately $3.0 million. No payments for any expenses were made directly or indirectly to (i) any of our officers or directors or their associates, (ii) any persons owning 10% or more of any class of our equity securities or (iii) any of our affiliates.

There has been no material change in the expected use of the net proceeds from our IPO as described in our final prospectus, dated September 16, 2020, filed with the SEC pursuant to Rule 424(b) relating to our registration statement on Form S-11 filed on September 17, 2020.

Repurchases of Equity Securities

We had previously adopted a share redemption program to provide an opportunity for our stockholders to have shares of our common stock 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 of February 10, 2020. Consequently, there were no redemptions of shares of our common stock during the three months ended ~~March 31,~~September 30, 2020.

~~Item 3.~~

Item 3.Defaults Upon Senior Securities.

None.

~~Item 4.~~

~~Mine Safety~~

Item 4.Mine Safety Disclosures.

Not applicable.

~~Item 5.~~

Item 5.Other Information.

None.

Item 6.Exhibits

E~~xhibits~~

No.		Description

~~2.1~~		Agreement and Plan of Merger, dated as of November 11, 2019, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, Broadstone Net Lease Sub 1, Inc., Broadstone Net Lease Sub 2, Inc., Broadstone Real Estate, LLC, Trident BRE Holdings I, Inc., Trident BRE Holdings II, Inc. and, solely for purposes of Sections 6.18, 6.19 and 6.20, Trident BRE Holdings I, L.P. and Trident BRE Holdings II, L.P. (filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on November 12, 2019 and incorporated herein by reference)

~~2.2~~		Amendment No. 1, dated February 7, 2020, to Agreement and Plan of Merger, dated as of November 11, 2019, by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, Broadstone Net Lease Sub 1, Inc., Broadstone Net Lease Sub 2, Inc., Broadstone Real Estate, LLC, Trident BRE Holdings I, Inc., Trident BRE Holdings II, Inc. and, solely for purposes of Sections 6.18, 6.19, and 6.20 of the Merger Agreement, Trident BRE Holdings I, L.P. and Trident BRE Holdings II, L.P. (filed as Exhibit 2.1 to the Corporation’s Current Report on Form 8-K filed February 7, 2020 and incorporated herein by reference)

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

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

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

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

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

4.1		Description of the Corporation’s Securities (filed as Exhibit 4.1 to the Corporation’s Annual Report on Form 10-K filed February 27, 2020 and incorporated herein by reference)

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

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

10.3		Revolving Credit and Agreement, dated as of September 4, 2020, by and among the Company, Broadstone Net Lease, LLC (the “Operating Company”), as the borrower, JPMorgan Chase Bank, N.A., and the other parties thereto (filed as Exhibit 10.1 to the Corporation’s Current Report on Form 8-K filed September 11, 2020 and incorporated herein by reference)

10.4		Guaranty, dated September 4, 2020, by Broadstone Net Lease, Inc. in favor of JPMorgan Chase Bank, N.A. (filed as Exhibit 10.2 to the Corporation’s Current Report on Form 8-K filed September 11, 2020 and incorporated herein by reference)

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

10.6		Amendment No. 1 to Term Loan Agreement, dated ~~February 7,~~September 21, 2020, by and among Broadstone Net Lease, LLC, Broadstone Net Lease, Inc., JPMorgan Chase Bank, N.A., and the other lenders party thereto (filed as Exhibit ~~10.1~~10.2 to the Corporation’s Current Report on Form 8-K filed ~~February 7,~~September 21, 2020 and incorporated herein by reference)

~~10.2~~10.7		~~Guaranty,~~Second Amendment to Capital One Term Loan Agreement, dated ~~February 7,~~as of September 21, 2020, by ~~Broadstone Net Lease, Inc. in favor of JPMorgan Chase Bank, N.A. (filed as Exhibit 10.2 to the Corporation’s Current Report on Form 8-K filed February 7, 2020~~ and ~~incorporated herein by reference)~~

~~10.3~~		~~Tax Protection Agreement, dated February 7, 2020, between~~among Broadstone Net Lease, Inc., Broadstone Net Lease, ~~LLC,~~Capital One, National Association, as administrative agent, and the ~~persons named therein~~lenders party thereto (filed as Exhibit 10.3 to the Corporation’s Current Report on Form 8-K filed ~~February 7,~~September 21, 2020 and incorporated herein by reference)

~~10.4~~10.8		~~Registration Rights~~Third Amendment to Revolving Credit and Term Loan Agreement, dated ~~February 7,~~as of September 21, 2020, ~~between~~by and among Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, Manufacturers and Traders Trust Company, as administrative agent, and the ~~persons named therein~~lenders party thereto (filed as Exhibit 10.4 to the Corporation’s Current Report on Form 8-K filed ~~February 7,~~September 21, 2020 and incorporated herein by reference)

~~10.5~~		Amendment No. 1, dated February 7, 2020 to the Amended and Restated Operating Agreement of Broadstone Net Lease, LLC (filed as Exhibit 10.5 to the Corporation’s Current Report on Form 8-K filed February 7, 2020 and incorporated herein by reference)

~~10.6~~		Amended and Restated Operating Agreement of Broadstone Net Lease, LLC, dated December 31, 2007 (filed as Exhibit 10.6 to the Corporation’s Current Report on Form 8-K filed February 7, 2020 and incorporated herein by reference)

~~10.7+~~		Amended and Restated Employment Agreement, effective February 7, 2020, by and between Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, Broadstone Employee Sub, LLC, and Christopher J. Czarnecki (filed as Exhibit 10.7 to the Corporation’s Current Report on Form 8-K filed February 7, 2020 and incorporated herein by reference)

~~10.8+~~		Amended and Restated Employment Agreement, effective February 7, 2020, by and between Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, Broadstone Employee Sub, LLC, and Ryan M. Albano (filed as Exhibit 10.8 to the Corporation’s Current Report on Form 8-K filed February 7, 2020 and incorporated herein by reference)

~~10.9+~~		Amended and Restated Employment Agreement, effective February 7, 2020, by and between Broadstone Net Lease, Inc., Broadstone Net Lease, LLC, Broadstone Employee Sub, LLC, and Sean T. Cutt (filed as Exhibit 10.9 to the Corporation’s Current Report on Form 8-K filed February 7, 2020 and incorporated herein by reference)

~~No.~~		~~Description~~
~~10.10+~~		~~Amended and Restated Employment Agreement, effective February 7, 2020, by and between Broadstone Net Lease, Inc.,~~ Broadstone Net Lease, LLC, Broadstone Employee Sub, LLC, and John D. Moragne (filed as Exhibit 10.10 to the Corporation’s Current Report on Form 8-K filed February 7, 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

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

No.		Description
32.1*†		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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

~~101.1~~101.INS		~~The following materials from~~Inline XBRL Instance Document – the ~~Corporation’s Quarterly Report on Form 10-Q for~~instance document does not appear in Interactive Data File because its XBRL tags are embedded within the ~~quarterly period ended March 31, 2020, formatted in~~Inline XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Income and Comprehensive (Loss) Income, (iii) Condensed Consolidated Statements of Stockholders’ Equity and Mezzanine Equity, (iv) Condensed Consolidated Statements of Cash Flows, and (v) Notes to Condensed Consolidated Financial StatementsDocument

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

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

*	Filed herewith.

+†	~~Management contract or compensatory plan or arrangement.~~

†

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

~~SIGNATURES~~SIGNATURES

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

		BROADSTONE NET LEASE, INC.

Date: ~~May 7,~~November 5, 2020		/s/ Christopher J. Czarnecki
		Christopher J. Czarnecki
		Chief Executive Officer and President

Date: ~~May 7,~~November 5, 2020		/s/ Ryan M. Albano
		Ryan M. Albano
		Executive Vice President and Chief Financial Officer

5662

(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.

	For the three months ended March 31,
(in thousands, except per share)	2020		2019
Basic earnings:
Net earnings attributable to Broadstone Net Lease, Inc.	$	10,816	$	13,938
Diluted earnings:
Net earnings attributable to Broadstone Net Lease, Inc.	$	10,816	$	13,938
Net earnings attributable to non-controlling interests		1,032		1,084
	$	11,848	$	15,022

Basic and diluted weighted average shares outstanding:
Weighted average number of common shares outstanding used in basic earnings per share		26,527		22,335
Effects of convertible membership units		2,526		1,737
Weighted average number of common shares outstanding used in diluted earnings per share		29,053		24,072
Basic and diluted net earnings per common share	$	0.41	$	0.62

	Rent Relief Request as of April 30, 2020										Portfolio Diversification as of March 31, 2020
Tenant Industry	# Properties		ABR ($000s)		% of Portfolio ABR			% of Property Type ABR			# Properties		ABR ($000s)		% of Portfolio ABR
Restaurants		186	$	34,357		11.8	%		74.1	%		246	$	46,337		15.9	%
Auto Parts & Equipment		25		9,555		3.3	%		94.6	%		31		10,103		3.5	%
Specialized Consumer Services		36		9,077		3.1	%		97.4	%		37		9,318		3.2	%
Healthcare Facilities		29		8,072		2.8	%		17.9	%		96		45,203		15.6	%
Home Furnishings		2		5,185		1.8	%		100.0	%		2		5,185		1.8	%
Home Furnishings Retail		9		3,910		1.3	%		32.1	%		19		12,195		4.2	%
Movies & Entertainment		1		3,125		1.1	%		100.0	%		1		3,125		1.1	%
Personal Products		2		2,899		1.0	%		100.0	%		2		2,899		1.0	%
Air Freight & Logistics		1		2,744		0.9	%		42.9	%		3		6,400		2.2	%
Industrial Machinery		6		2,675		0.9	%		49.1	%		15		5,454		1.9	%
Specialty Stores		1		2,557		0.9	%		41.8	%		15		6,114		2.1	%
Distillers & Vintners		1		2,344		0.8	%		100.0	%		1		2,344		0.8	%
Internet & Direct Marketing Retail		1		2,280		0.8	%		49.9	%		2		4,564		1.6	%
Construction Machinery & Heavy Truck		1		1,972		0.7	%		100.0	%		1		1,972		0.7	%
Food Retail		1		1,860		0.6	%		100.0	%		1		1,860		0.6	%
Footwear		1		1,761		0.6	%		100.0	%		1		1,761		0.6	%
Automotive Retail		6		1,717		0.6	%		87.4	%		8		1,964		0.7	%
Data Processing & Outsourced Services		1		1,580		0.5	%		100.0	%		1		1,580		0.5	%
Marine		1		1,571		0.5	%		100.0	%		1		1,571		0.5	%
Life Sciences Tools & Services		3		1,449		0.5	%		36.5	%		5		3,973		1.4	%
Automobile Manufacturers		1		1,104		0.4	%		100.0	%		1		1,104		0.4	%
Healthcare Services		1		1,058		0.4	%		13.0	%		16		8,143		2.8	%
Food Distributors		1		1,031		0.4	%		8.1	%		7		12,670		4.4	%
Paper Packaging		1		793		0.3	%		20.1	%		3		3,948		1.4	%
Commodity Chemicals		3		783		0.3	%		56.3	%		4		1,392		0.5	%
Miscellaneous		—		—		—			—			117		89,367		30.6	%
Total		321	$	105,459		36.3	%	N/A				636	$	290,546		100.0	%

(in thousands, except interest rates)	Outstanding Balance			Interest Rate	Maturity Date
2020 Unsecured Term Loan	$	240,000		one-month LIBOR + 1.25%	Aug. 2020
Unsecured Revolving Credit and Term Loan Agreement
Revolving Credit Facility		353,300		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
		808,300
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		2,033,300
Debt issuance costs, net		(7,413	)
	$	2,025,887