ROCHESTER, N.Y.–(BUSINESS WIRE)–Broadstone Net Lease, Inc. (NYSE: BNL) (“BNL,” the “Company,” “we,” “our,” or “us”), today announced its operating results for the quarter ended September 30, 2022.
THIRD QUARTER 2022 HIGHLIGHTS
INVESTMENT
ACTIVITY
Invested $204.5 million at a weighted average initial cash capitalization rate of 6.5%, including the acquisition of 27 properties with a weighted average initial term of 20.9 years and minimum annual rent increases of 2.0%. These investments were predominantly weighted towards industrial opportunities (85.8% of the quarter’s volume, based on ABR), with the remaining investment activity spanning property types such as restaurant (6.6%), healthcare (4.6%) and retail (3.0%).
Subsequent to quarter end, we invested an additional $283.1 million and currently have $21.6 million of investments under control.
CAPITAL MARKETS
ACTIVITY
Sold 962,200 shares of common stock for net proceeds of $20.3 million under our at-the-market common equity offering (“ATM Program”).
Completed a forward equity offering of 13,000,000 shares for anticipated net proceeds of approximately $270.7 million, none of which have settled.
Entered into a $200 million, five year unsecured term loan and a $300 million, seven year unsecured term loan, the proceeds of which were used to repay in full our $190 million term loan set to mature in 2024, and a portion of the outstanding borrowings on our unsecured revolving credit facility. In addition, we entered into interest rate swaps with a total notional value of $260 million to fix the Secured Overnight Financing Rate (“SOFR”) component of the borrowing rate at a weighted average fixed interest rate of 2.59% until August 1, 2029.
Ended the quarter with total outstanding debt of $2.1 billion, Net Debt of $2.0 billion, a Net Debt to Annualized Adjusted EBITDAre ratio of 5.5x, and a pro forma Net Debt to Annualized Adjusted EBITDAre ratio of 4.8x assuming settlement of the outstanding forward.
Increased our quarterly dividend to $0.275.
OPERATING
RESULTS
Collected 100% of base rents due for the third quarter, and our portfolio was 99.3% leased based on rentable square footage, with only three of our 790 total properties vacant and not subject to a lease as of quarter end.
Incurred $9.9 million of general and administrative expenses, inclusive of $1.5 million of stock-based compensation.
Generated net income of $28.7 million, or $0.16 per share.
Generated adjusted funds from operations (“AFFO”) of $63.4 million, or $0.35 per share.
Reaffirmed the guidance range for the 2022 full year and currently expect to report AFFO of between $1.38 and $1.40 per diluted share.
MANAGEMENT COMMENTARY
“As we highlighted in our business update in early October, we’ve continued to grow our portfolio through accretive acquisitions supported by our proactive capital markets strategy, and our portfolio continues to perform well with 100% rent collection and minimal vacancies given its highly diversified and defensive construction,” said Chris Czarnecki, BNL’s Chief Executive Officer. “We continue to have strong conviction in our diversified strategy and its proven ability to deliver durable cash flows, while also providing us with the ability to pivot between property types and selectively pursue attractive investment opportunities as the broader market landscape evolves. While we continue to see no shortage of investment opportunities, a disconnect currently exists between the capital markets and property transaction markets. Cost of capital across the sector has considerably increased while asset pricing levels have been slower to respond. Given this disconnect, we anticipate pricing adjustments in net lease assets and believe it is prudent to take a more selective and opportunistic approach to capital deployment in the near-term.”
SUMMARIZED FINANCIAL RESULTS
For the Three Months Ended
For the Nine Months Ended
(in thousands, except per share data)
September 30,
2022
June 30,
2022
September 30,
2021
September 30,
2022
September 30,
2021
Revenues
$
103,524
$
98,013
$
122,777
$
295,378
$
290,234
Net income, including non-controlling interests
$
28,709
$
35,552
$
30,522
$
92,702
$
77,302
Net earnings per share
$
0.16
$
0.20
$
0.18
$
0.52
$
0.48
FFO
$
72,169
$
68,340
$
91,947
$
202,013
$
194,060
FFO per share
$
0.39
$
0.38
$
0.54
$
1.13
$
1.20
Core FFO
$
66,677
$
65,986
$
59,769
$
196,739
$
168,191
Core FFO per share
$
0.36
$
0.37
$
0.35
$
1.10
$
1.04
AFFO
$
63,386
$
62,804
$
55,836
$
186,590
$
157,270
AFFO per share
$
0.35
$
0.35
$
0.33
$
1.04
$
0.97
Diluted Weighted Average Shares Outstanding
182,971
180,256
169,587
179,132
161,273
FFO, Core FFO, and AFFO are measures that are not calculated in accordance with accounting principles generally accepted in the United States of America (“GAAP”). See the Reconciliation of Non-GAAP Measures later in this press release.
REAL ESTATE PORTFOLIO UPDATE
As of September 30, 2022, we owned a diversified portfolio of 790 individual net leased commercial properties with 783 properties located in 44 U.S. states and seven properties located in four Canadian provinces, comprising approximately 36.8 million rentable square feet of operational space. As of September 30, 2022, all but three of our properties were subject to a lease, and our properties were occupied by 218 different commercial tenants, with no single tenant accounting for more than 2.4% of ABR. Properties subject to a lease represent 99.3% of our portfolio’s rentable square footage. The ABR weighted average annual minimum rent increase, pursuant to leases on properties in the portfolio as of September 30, 2022, was 2.0%.
During the third quarter, we invested $204.5 million in accretive acquisitions and revenue generating capital expenditures at a weighted average initial cash capitalization rate of 6.5%, including the acquisition of 27 properties located across 10 U.S. states with a weighted average initial lease term and minimum annual rent increases of 20.9 years and 2.0%, respectively. These investments were predominantly weighted towards industrial opportunities (85.8% of the quarter’s volume, based on ABR), with the remaining investment activity spanning property types such as restaurant (6.6%), healthcare (4.6%) and retail (3.0%).
Subsequent to quarter end, we invested an additional $283.1 million in 15 properties and have $21.6 million of investments under control, which we define as under contract or executed letter of intent.
BALANCE SHEET AND CAPITAL MARKETS ACTIVITIES
During the third quarter, BNL sold 962,200 shares of common stock under its ATM Program at a weighted average sale price of $21.44 per share for net proceeds of $20.3 million. There was approximately $145.4 million of capacity remaining on the ATM Program as of September 30, 2022.
On August 1, 2022, we entered into two new unsecured bank term loans, including a $200 million, five year term loan that matures in 2027 (the “2027 Unsecured Term Loan”), and a $300 million, seven year term loan that matures in 2029 (the “2029 Unsecured Term Loan”). Borrowings on the new term loans bear interest at variable rates based on the SOFR as adjusted, plus a margin based on our credit rating ranging between 0.80% and 1.60% per annum for the 2027 Unsecured Term Loan, and 1.15% and 2.20% per annum for the 2029 Unsecured Term Loan. The initial applicable margin was 0.95% and 1.25% for the 2027 Unsecured Term Loan and 2029 Unsecured Term Loan, respectively. Proceeds from the loans were used to repay in full our $190 million unsecured term loan set to mature in 2024, including accrued interest, and a portion of the outstanding balance on our unsecured revolving credit facility. In addition, we entered into interest rate swaps with a total notional value of $260 million to fix the SOFR component of the borrowing rate at a weighted average fixed interest rate of 2.59% until August 1, 2029. With the addition of these interest rate swaps, our unsecured bank term loans remain entirely hedged.
In August 2022, we completed a public offering of 13,000,000 shares of common stock at a price of $21.35 per share, subject to certain adjustments, in connection with a forward sale agreement. We expect to settle the forward sale agreement by the August 2023 maturity date. As of September 30, 2022, we anticipate the forward sale agreement will provide net proceeds of approximately $270.7 million, resulting in a pro forma Net Debt to Annualized Adjusted EBITDAre ratio of 4.8x. We have not settled any part of the forward sale agreement as of September 30, 2022.
DISTRIBUTIONS
At its October 27, 2022, meeting, our board of directors declared a $0.275 distribution per common share and OP Unit to stockholders and OP unitholders of record as of December 31, 2022, payable on or before January 15, 2022.
2022 GUIDANCE
BNL has reaffirmed its guidance range for the 2022 full year and currently expects to report AFFO of between $1.38 and $1.40 per diluted share.
The guidance range is based on the following key assumptions, which is unchanged from the guidance range provided on October 4, 2022:
(i)
investments in real estate properties between $900 million and $1 billion;
(ii)
dispositions of real estate properties between $50 million and $75 million; and
(iii)
total cash general and administrative expenses between $31 million and $33 million.
Our per share results are sensitive to both timing and amount of real estate investments, property dispositions, and capital markets activities that occur throughout the year.
The Company does not provide guidance for the most comparable GAAP financial measure, net income, or a reconciliation of the forward-looking non-GAAP financial measure of AFFO to net income computed in accordance with GAAP, because it is unable to reasonably predict, without unreasonable efforts, certain items that would be contained in the GAAP measure, including items that are not indicative of the Company’s ongoing operations, including, without limitation, potential impairments of real estate assets, net gain/loss on dispositions of real estate assets, changes in allowance for credit losses, and stock-based compensation expense. These items are uncertain, depend on various factors, and could have a material impact on the Company’s GAAP results for the guidance periods.
CONFERENCE CALL AND WEBCAST
The company will host its third quarter earnings conference call and audio webcast on Thursday, November 3, 2022, at 11:00 a.m. Eastern Time.
To access the live webcast, which will be available in listen-only mode, please visit: https://events.q4inc.com/attendee/395933686. If you prefer to listen via phone, U.S. participants may dial: 1-844-200-6205 (toll free) or 1-646-904-5544 (local), access code 181980. International access numbers are viewable here: https://events.q4irportal.com/custom/access/2324/.
A replay of the conference call webcast will be available approximately one hour after the conclusion of the live broadcast. To listen to a replay of the call via phone, all participants may dial: 1-866-813-9403 (toll free) or 1-929-458-6194 (local), access code 547581. The replay will be available via dial-in until Thursday, November 17, 2022. To listen to a replay of the call via the web, which will be available for one year, please visit: https://investors.bnl.broadstone.com.
About Broadstone Net Lease, Inc.
BNL is a real estate investment trust that acquires, owns, and manages primarily single-tenant commercial real estate properties that are net leased on a long-term basis to a diversified group of tenants. The Company utilizes an investment strategy underpinned by strong fundamental credit analysis and prudent real estate underwriting. As of September 30, 2022, BNL’s diversified portfolio consisted of 790 individual net leased commercial properties with 783 properties located in 44 U.S. states and seven properties located in four Canadian provinces across the industrial, healthcare, restaurant, retail, and office property types.
Forward-Looking Statements
This press release contains “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, regarding, among other things, our plans, strategies, and prospects, both business and financial. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as “may,” “will,” “should,” “expect,” “intend,” “anticipate,” “estimate,” “would be,” “believe,” “continue,” or other similar words. Forward-looking statements, including our 2022 guidance and assumptions, involve known and unknown risks and uncertainties, which may cause BNL’s actual future results to differ materially from expected results, including, without limitation, risks and uncertainties related to the COVID-19 pandemic and its related impacts on us and our tenants, general economic conditions, including but not limited to increases in the rate of inflation and/or interest rates, local real estate conditions, tenant financial health, property investments and acquisitions, and the timing and uncertainty of completing these acquisitions, and uncertainties regarding future distributions to our stockholders. These and other risks, assumptions, and uncertainties are described in Item 1A “Risk Factors” of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on February 23, 2022, which you are encouraged to read, and is available on the SEC’s website at www.sec.gov. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those indicated or anticipated by such forward-looking statements. Accordingly, you are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they are made. The Company assumes no obligation to, and does not currently intend to, update any forward-looking statements after the date of this press release, whether as a result of new information, future events, changes in assumptions, or otherwise.
Notice Regarding Non-GAAP Financial Measures
In addition to our reported results and net earnings per diluted share, which are financial measures presented in accordance with GAAP, this press release contains and may refer to certain non-GAAP financial measures, including Funds from Operations (“FFO”), Core Funds From Operations (“Core FFO”), Adjusted Funds from Operations (“AFFO”), Net Debt, and Net Debt to Annualized Adjusted EBITDAre. We believe the use of FFO, Core 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, Core 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 believe presenting Net Debt to Annualized Adjusted EBITDAre is useful to investors because it provides information about gross debt less cash and cash equivalents, which could be used to repay debt, compared to our performance as measured using Annualized Adjusted EBITDAre. You should not consider our Annualized Adjusted EBITDAre as an alternative to net income or cash flows from operating activities determined in accordance with GAAP. A reconciliation of non-GAAP measures to the most directly comparable GAAP financial measure and statements of why management believes these measures are useful to investors are included below.
Broadstone Net Lease, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except per share amounts)
September 30,
2022
December 31,
2021
Assets
Accounted for using the operating method:
Land
$
755,206
$
655,374
Land improvements
331,858
295,329
Buildings and improvements
3,650,275
3,242,618
Equipment
10,422
11,870
Total accounted for using the operating method
4,747,761
4,205,191
Less accumulated depreciation
(505,456
)
(430,141
)
Accounted for using the operating method, net
4,242,305
3,775,050
Accounted for using the direct financing method
27,128
28,782
Accounted for using the sales-type method
571
571
Investment in rental property, net
4,270,004
3,804,403
Cash and cash equivalents
75,912
21,669
Accrued rental income
129,579
116,874
Tenant and other receivables, net
791
1,310
Prepaid expenses and other assets
18,984
17,275
Interest rate swap, assets
66,602
—
Goodwill
339,769
339,769
Intangible lease assets, net
322,314
303,642
Debt issuance costs – unsecured revolving credit facility, net
6,485
4,065
Leasing fees, net
8,752
9,641
Total assets
$
5,239,192
$
4,618,648
Liabilities and equity
Unsecured revolving credit facility
$
219,537
$
102,000
Mortgages, net
94,753
96,846
Unsecured term loans, net
894,378
646,671
Senior unsecured notes, net
844,367
843,801
Interest rate swap, liabilities
—
27,171
Accounts payable and other liabilities
52,594
38,038
Dividends payable
49,886
45,914
Accrued interest payable
10,559
6,473
Intangible lease liabilities, net
64,971
70,596
Total liabilities
2,231,045
1,877,510
Commitments and contingencies
Equity
Broadstone Net Lease, Inc. stockholders’ equity:
Preferred stock, $0.001 par value; 20,000 shares authorized, no shares issued or outstanding
—
—
Common stock, $0.00025 par value; 500,000 shares authorized, 173,155 and 162,383 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively
43
41
Additional paid-in capital
3,148,075
2,924,168
Cumulative distributions in excess of retained earnings
(369,260
)
(318,476
)
Accumulated other comprehensive income (loss)
61,834
(28,441
)
Total Broadstone Net Lease, Inc. stockholders’ equity
2,840,692
2,577,292
Non-controlling interests
167,455
163,846
Total equity
3,008,147
2,741,138
Total liabilities and equity
$
5,239,192
$
4,618,648
Broadstone Net Lease, Inc. and Subsidiaries
Condensed Consolidated Statements of Income and Comprehensive Income
(in thousands, except per share amounts)
For the Three Months Ended
For the Nine Months Ended
September 30,
2022
June 30,
2022
September 30,
2022
September 30,
2021
Revenues
Lease revenues, net
$
103,524
$
98,013
$
295,378
$
290,234
Operating expenses
Depreciation and amortization
39,400
35,511
109,201
98,620
Property and operating expense
5,636
4,696
15,376
14,019
General and administrative
9,942
9,288
28,058
27,840
Provision for impairment of investment in rental properties
4,155
1,380
5,535
28,001
Total operating expenses
59,133
50,875
158,170
168,480
Other income (expenses)
Interest income
4
—
4
11
Interest expense
(20,095
)
(17,888
)
(54,879
)
(47,149
)
Cost of debt extinguishment
(231
)
—
(231
)
(368
)
Gain on sale of real estate
61
4,071
5,328
9,791
Income taxes
(356
)
(401
)
(1,169
)
(1,187
)
Change in fair value of earnout liability
—
—
—
(5,539
)
Other income (expenses)
4,935
2,632
6,441
(11
)
Net income
28,709
35,552
92,702
77,302
Net income attributable to non-controlling interests
(1,600
)
(2,036
)
(5,319
)
(5,167
)
Net income attributable to Broadstone Net Lease, Inc.
$
27,109
$
33,516
$
87,383
$
72,135
Weighted average number of common shares outstanding
Basic
172,578
169,555
168,680
150,227
Diluted
182,971
180,256
179,132
161,273
Net earnings per common share
Basic and diluted
$
0.16
$
0.20
$
0.52
$
0.48
Comprehensive income
Net income
$
28,709
$
35,552
$
92,702
$
77,302
Other comprehensive income
Change in fair value of interest rate swaps
40,039
18,772
93,772
30,328
Realized loss (gain) on interest rate swaps
639
695
1,993
2
Comprehensive income
69,387
55,019
188,467
107,632
Comprehensive income attributable to non-controlling
interests
(3,868
)
(3,151
)
(10,809
)
(7,313
)
Comprehensive income attributable to Broadstone Net
Lease, Inc.
$
65,519
$
51,868
$
177,658
$
100,319
Reconciliation of Non-GAAP Measures
The following is a reconciliation of net income to FFO, Core FFO, and AFFO for the three months ended September 30, 2022 and June 30, 2022 and for the nine months ended September 30, 2022 and 2021. Also presented is the weighted average number of shares of our common stock and OP Units used for the diluted per share computation:
For the Three Months Ended
For the Nine Months Ended
(in thousands, except per share data)
September 30,
2022
June 30,
2022
September 30,
2022
September 30,
2021
Net income
$
28,709
$
35,552
$
92,702
$
77,302
Real property depreciation and amortization
39,366
35,479
109,104
98,548
Gain on sale of real estate
(61
)
(4,071
)
(5,328
)
(9,791
)
Provision for impairment on investment in rental properties
4,155
1,380
5,535
28,001
FFO
$
72,169
$
68,340
$
202,013
$
194,060
Net write-offs of accrued rental income
—
—
1,326
1,938
Lease termination fee
(791
)
—
(791
)
(35,000
)
Cost of debt extinguishment
231
—
231
368
Severance
3
278
401
1,275
Change in fair value of earnout liability
—
—
—
5,539
Other (Income) expenses(1)
(4,935
)
(2,632
)
(6,441
)
11
Core FFO
$
66,677
$
65,986
$
196,739
$
168,191
Straight-line rent adjustment
(5,175
)
(4,965
)
(15,075
)
(14,983
)
Adjustment to provision for credit losses
(4
)
(1
)
(5
)
(1
)
Amortization of debt issuance costs
948
900
2,704
2,832
Amortization of net mortgage premiums
(26
)
(25
)
(78
)
(106
)
Loss on interest rate swaps and other non-cash interest expense
639
695
1,993
2
Amortization of lease intangibles
(1,176
)
(1,167
)
(3,501
)
(2,309
)
Stock-based compensation
1,503
1,381
3,813
3,644
AFFO
$
63,386
$
62,804
$
186,590
$
157,270
Diluted WASO(2)
182,971
180,256
179,132
161,273
Net earnings per share(3)
$
0.16
$
0.20
$
0.52
$
0.48
FFO per share(3)
0.39
0.38
1.13
1.20
Core FFO per share(3)
0.36
0.37
1.10
1.04
AFFO per share(3)
0.35
0.35
1.04
0.97
1Amount includes $4.9 million and $2.6 million of unrealized foreign exchange gain for the three months ended September 30, 2022 and June 30, 2022, respectively, and $6.4 million of unrealized foreign exchange gain for the nine months ended September 30, 2022, primarily associated with our Canadian dollar denominated revolving borrowings.
2Excludes 395,441 and 377,407 weighted average shares of unvested restricted common stock for the three months ended September 30, 2022 and June 30, 2022, respectively. Excludes 381,220 and 366,477 weighted average shares of unvested restricted common stock for the nine months ended September 30, 2022 and 2021, respectively.
3Excludes $0.1 million from the numerator for the three months ended September 30, 2022 and June 30, 2022, respectively, and $0.3 million from the numerator for the nine months ended September 30, 2022 and 2021, respectively, related to dividends paid or declared on shares of unvested restricted common stock.
Contacts
Company Contact:
Michael Caruso
SVP, Corporate Finance & Investor Relations
michael.caruso@broadstone.com
585.402.7842
