Broadstone Net Lease Announces 2023 Results and its Healthcare Portfolio Simplification Strategy
- Strong 2023 results achieved despite economic headwinds and market volatility.
- Focused on portfolio quality and simplification of healthcare assets.
- Achieved $1.41 per share of AFFO, in line with guidance midpoint.
- Completed investments totaling $165.6 million in 2023.
- Sold 14 properties for gross proceeds of $200.1 million with a gain of $35.0 million.
- Invested $12.3 million post-year-end in development fundings and capital expenditures.
- Executed contracts to sell 37 healthcare properties for $253.0 million.
- Collected 99.8% of base rents for the year, with a 99.4% leased portfolio.
- Declared dividends of $1.12 in 2023, a 3.7% increase over the prior year.
- Board approved a $150.0 million common stock repurchase program on March 14, 2023.
- 2024 guidance expects AFFO of $1.41 per diluted share.
- Company to host fourth quarter earnings conference call on February 22, 2024.
- None.
Insights
Broadstone Net Lease, Inc.'s (BNL) reported operating results and the announcement of its healthcare portfolio simplification strategy could have a significant impact on investors' perception of the company's financial health and future prospects. The reported AFFO (Adjusted Funds From Operations) of $1.41 per share, which aligns with the midpoint of their guidance range, indicates stability in their operations and suggests a disciplined approach to managing their portfolio amidst economic challenges.
Moreover, the company's investment activity, totaling $165.6 million and the strategic disposition of properties, generating a $35.0 million gain over the original purchase price, demonstrate an active management of assets contributing to the overall profitability. The weighted average initial cash capitalization rate of 7.2% for new acquisitions is a critical metric indicating the initial yield on investment, which appears competitive in the current market.
BNL's capital markets activity, including a fortified balance sheet with low leverage of 5.0x and no significant debt maturities until 2026, positions the company well for financial stability and growth. The dividend increase of 3.7% over the prior year also signals confidence in the company's ability to generate consistent cash flows.
The strategic shift to simplify BNL's healthcare portfolio by selling clinically-oriented properties reflects a broader industry trend where REITs are focusing on assets with longer lease durations and less operational complexity. By reducing exposure to assets that have greater landlord responsibilities and potential for longer vacancies, BNL is aiming to streamline operations and concentrate on core net lease assets in industrial, retail and restaurant sectors, which are typically viewed as more stable investments.
From a market perspective, this move could make BNL more attractive to investors who prefer REITs with a clear focus and reduced operational risk. The sale of these healthcare assets, which represent 11% of total annualized base rent, at a weighted average cash capitalization rate of 7.9%, may also be seen as a positive sign of proactive portfolio management in response to market conditions and tenant performance.
The decision to divest from certain healthcare properties, such as clinical, surgical and traditional medical office buildings, is based on their unique characteristics that might not align with BNL's investment strategy. These types of properties often come with shorter lease terms and greater landlord responsibilities, which can lead to increased operational burdens and financial risks. By offloading these assets, BNL can potentially reduce the complexity of its portfolio and focus on properties that are more in line with the net lease model.
Additionally, the move to focus on consumer-centric medical properties, such as plasma, dialysis and veterinary services, suggests an emphasis on assets that are essential to the tenant's operations and carry less regulatory risk. This could result in a more resilient and focused healthcare portfolio that is better suited to weather economic downturns and industry-specific challenges.
MANAGEMENT COMMENTARY
“I am incredibly proud of our 2023 results, which we were able to deliver despite significant economic headwinds and capital market volatility through the year. We thoughtfully navigated a challenging environment by intentionally focusing on portfolio composition and quality which we believe will be the catalyst for increasing shareholder value as markets stabilize,” said John Moragne, BNL’s Chief Executive Officer. “We employed a disciplined and selective approach to all aspects of our investment cycle: intentionally evading risk and creatively sourcing investment opportunities that were created by the distressed lending environment and complementary to our core competencies and asset classes; maintaining a high quality portfolio of diversified properties with strong operating metrics; pruning tenant credit risk and lease rollover risk through selective dispositions with attractive spreads to redeployment yields; and maintaining a fortified investment grade balance sheet with low leverage at 5.0x, no material debt maturities until 2026, and ample liquidity to capitalize on additional investment opportunities. As a result, we were able to achieve
FULL YEAR 2023 HIGHLIGHTS
INVESTMENT ACTIVITY |
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OPERATING RESULTS |
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CAPITAL MARKETS ACTIVITY |
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FOURTH QUARTER 2023 HIGHLIGHTS
INVESTMENT ACTIVITY |
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OPERATING RESULTS |
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HEALTHCARE PORTFOLIO SIMPLIFICATION STRATEGY
Subsequent to quarter end, we made the strategic decision to sell our clinically-oriented healthcare properties, furthering our focus on core net lease assets in the industrial, retail, and restaurant sectors. The assets identified for sale are not customarily included in single tenant net lease portfolios and include clinical, surgical, and traditional MOB properties. These types of assets generally have shorter lease durations, greater landlord responsibilities, longer potential downtime upon lease maturity, and in some cases, greater potential challenges with tenants. The characteristics of these assets can make them attractive for a dedicated healthcare property investor and manager, but those same characteristics can make them challenging in the net lease space.
In total, we have identified 75 healthcare assets for sale that account for approximately
Of the properties identified for sale, we have executed contracts on 37 healthcare properties for approximately
Following the sales, the remaining assets in our healthcare portfolio will consist of consumer-centric medical properties that are customary for many publicly-traded net lease REITs, examples of which include plasma, dialysis, and veterinary services; assets with real estate fundamentals critical to the tenant’s business and little to no regulatory risk. Refer to our fourth quarter 2023 investor presentation for more detailed information regarding our healthcare portfolio simplification strategy.
As part of our healthcare portfolio simplification strategy, we made the decision to sell Green Valley Medical Center after the tenant failed to pay rent since October 2023 as the result of not meeting certain operational thresholds, and we are actively marketing the property through the date of this release. The decision resulted in us recognizing approximately
In reference to BNL’s healthcare portfolio simplification strategy, John Moragne, BNL’s Chief Executive Officer, said, “As I’ve highlighted in recent quarters, we continue to focus more heavily on net lease industrial assets, while continuing to have deep conviction in net lease retail and restaurant assets, and have taken a hard look at property types that don’t fit within our investment thesis, particularly clinical, surgical, and traditional medical office building assets. Tenant bankruptcies, hands-on property management, heavier landlord responsibilities and costs, and messaging complexity in these properties has been an unnecessary distraction from our otherwise prudent and successful capital allocations. Our healthcare portfolio simplification strategy is an extension of our focus on portfolio quality and evolution, which we believe will result in meaningful value creation for investors.”
SUMMARIZED FINANCIAL RESULTS |
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For the Year Ended |
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For the Three Months Ended |
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(in thousands, except per share data) |
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December 31,
|
|
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December 31,
|
|
|
December 31,
|
|
|
September 30,
|
|
|
December 31,
|
|
|||||
Revenues |
|
$ |
442,888 |
|
|
$ |
407,513 |
|
|
$ |
105,000 |
|
|
$ |
109,543 |
|
|
$ |
112,135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net income, including non-controlling interests |
|
$ |
163,312 |
|
|
$ |
129,475 |
|
|
$ |
6,797 |
|
|
$ |
52,145 |
|
|
$ |
36,773 |
|
Net earnings per share - diluted |
|
$ |
0.83 |
|
|
$ |
0.72 |
|
|
$ |
0.03 |
|
|
$ |
0.26 |
|
|
$ |
0.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
FFO |
|
$ |
298,622 |
|
|
$ |
273,730 |
|
|
$ |
69,443 |
|
|
$ |
75,478 |
|
|
$ |
71,718 |
|
FFO per share |
|
$ |
1.52 |
|
|
$ |
1.52 |
|
|
$ |
0.35 |
|
|
$ |
0.39 |
|
|
$ |
0.39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Core FFO |
|
$ |
298,883 |
|
|
$ |
267,265 |
|
|
$ |
75,275 |
|
|
$ |
74,754 |
|
|
$ |
70,527 |
|
Core FFO per share |
|
$ |
1.52 |
|
|
$ |
1.48 |
|
|
$ |
0.38 |
|
|
$ |
0.38 |
|
|
$ |
0.38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
AFFO |
|
$ |
277,725 |
|
|
$ |
252,173 |
|
|
$ |
71,278 |
|
|
$ |
69,958 |
|
|
$ |
65,585 |
|
AFFO per share |
|
$ |
1.41 |
|
|
$ |
1.40 |
|
|
$ |
0.36 |
|
|
$ |
0.36 |
|
|
$ |
0.36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Diluted Weighted Average Shares Outstanding |
|
|
196,315 |
|
|
|
180,201 |
|
|
|
196,373 |
|
|
|
196,372 |
|
|
|
183,592 |
|
FFO, Core FFO, and AFFO are measures that are not calculated in accordance with accounting principles generally accepted in
REAL ESTATE PORTFOLIO UPDATE
As of December 31, 2023, we owned a diversified portfolio of 796 individual net leased commercial properties with 789 properties located in 44 U.S. states and seven properties located in four Canadian provinces, comprising approximately 38.3 million rentable square feet of operational space. As of December 31, 2023, all but two of our properties were subject to a lease, and our properties were occupied by 220 different commercial tenants, with no single tenant accounting for more than
BALANCE SHEET AND CAPITAL MARKETS ACTIVITIES
As of December 31, 2023, we had total outstanding debt of
We did not raise any equity during the quarter and year, and had approximately
DISTRIBUTIONS
At its February 16, 2024, meeting, our board of directors declared a quarterly dividend of
2024 GUIDANCE
For 2024, BNL expects to report AFFO of
The guidance is based on the following key assumptions:
(i) |
investments in real estate properties between |
|
(ii) |
dispositions of real estate properties between |
|
(iii) |
total cash general and administrative expenses between |
Our per share results are sensitive to both the 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 fourth quarter earnings conference call and audio webcast on Thursday, February 22, 2024, 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/958546087. If you prefer to listen via phone,
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 the web, which will be available for one year, please visit: https://investors.bnl.broadstone.com.
About Broadstone Net Lease, Inc.
BNL is an industrial-focused, diversified net lease REIT that invests in primarily single-tenant commercial real estate properties that are net leased on a long-term basis to a diversified group of tenants. Utilizing an investment strategy underpinned by strong fundamental credit analysis and prudent real estate underwriting, as of December 31, 2023, BNL’s diversified portfolio consisted of 796 individual net leased commercial properties with 789 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 “outlook,” “potential,” “may,” “will,” “should,” “could,” “seeks,” “approximately,” “projects,” “predicts,” “expect,” “intends,” “anticipates,” “estimates,” “plans,” “would be,” “believes,” “continues,” or the negative version of these words or other comparable words. Forward-looking statements, including our 2023 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 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 property investments and 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, 2023, which BNL expects to file with the SEC on February 22, 2024, which you are encouraged to read, and will be 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 Consolidated Balance Sheets (in thousands, except per share amounts) |
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December 31,
|
|
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December 31,
|
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||
|
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|
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|
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Assets |
|
|
|
|
|
|
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Accounted for using the operating method: |
|
|
|
|
|
|
||
Land |
|
$ |
748,529 |
|
|
$ |
768,667 |
|
Land improvements |
|
|
328,746 |
|
|
|
340,385 |
|
Buildings and improvements |
|
|
3,803,156 |
|
|
|
3,888,756 |
|
Equipment |
|
|
8,265 |
|
|
|
10,422 |
|
Total accounted for using the operating method |
|
|
4,888,696 |
|
|
|
5,008,230 |
|
Less accumulated depreciation |
|
|
(626,597 |
) |
|
|
(533,965 |
) |
Accounted for using the operating method, net |
|
|
4,262,099 |
|
|
|
4,474,265 |
|
Accounted for using the direct financing method |
|
|
26,643 |
|
|
|
27,045 |
|
Accounted for using the sales-type method |
|
|
572 |
|
|
|
571 |
|
Property under development |
|
|
94,964 |
|
|
|
— |
|
Investment in rental property, net |
|
|
4,384,278 |
|
|
|
4,501,881 |
|
Cash and cash equivalents |
|
|
19,494 |
|
|
|
21,789 |
|
Accrued rental income |
|
|
152,724 |
|
|
|
135,666 |
|
Tenant and other receivables, net |
|
|
1,487 |
|
|
|
1,349 |
|
Prepaid expenses and other assets |
|
|
36,661 |
|
|
|
64,180 |
|
Interest rate swap, assets |
|
|
46,096 |
|
|
|
63,390 |
|
Goodwill |
|
|
339,769 |
|
|
|
339,769 |
|
Intangible lease assets, net |
|
|
288,226 |
|
|
|
329,585 |
|
Total assets |
|
$ |
5,268,735 |
|
|
$ |
5,457,609 |
|
|
|
|
|
|
|
|
||
Liabilities and equity |
|
|
|
|
|
|
||
Unsecured revolving credit facility |
|
$ |
90,434 |
|
|
$ |
197,322 |
|
Mortgages, net |
|
|
79,068 |
|
|
|
86,602 |
|
Unsecured term loans, net |
|
|
895,947 |
|
|
|
894,692 |
|
Senior unsecured notes, net |
|
|
845,309 |
|
|
|
844,555 |
|
Accounts payable and other liabilities |
|
|
47,534 |
|
|
|
47,547 |
|
Dividends payable |
|
|
56,869 |
|
|
|
54,460 |
|
Accrued interest payable |
|
|
5,702 |
|
|
|
7,071 |
|
Intangible lease liabilities, net |
|
|
53,531 |
|
|
|
62,855 |
|
Total liabilities |
|
|
2,074,394 |
|
|
|
2,195,104 |
|
|
|
|
|
|
|
|
||
Commitments and contingencies |
|
|
|
|
|
|
||
|
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|
|
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|
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Equity |
|
|
|
|
|
|
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Broadstone Net Lease, Inc. equity: |
|
|
|
|
|
|
||
Preferred stock, |
|
|
— |
|
|
|
— |
|
Common stock, |
|
|
47 |
|
|
|
47 |
|
Additional paid-in capital |
|
|
3,440,639 |
|
|
|
3,419,395 |
|
Cumulative distributions in excess of retained earnings |
|
|
(440,731 |
) |
|
|
(386,049 |
) |
Accumulated other comprehensive income |
|
|
49,286 |
|
|
|
59,525 |
|
Total Broadstone Net Lease, Inc. equity |
|
|
3,049,241 |
|
|
|
3,092,918 |
|
Non-controlling interests |
|
|
145,100 |
|
|
|
169,587 |
|
Total equity |
|
|
3,194,341 |
|
|
|
3,262,505 |
|
Total liabilities and equity |
|
$ |
5,268,735 |
|
|
$ |
5,457,609 |
|
Broadstone Net Lease, Inc. and Subsidiaries Consolidated Statements of Income and Comprehensive Income (in thousands, except per share amounts) |
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(Unaudited) |
|
|
|
|
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|
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For the Three Months Ended |
|
|
For the Year Ended |
|
||||||||||
|
|
December 31,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
December 31,
|
|
||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Lease revenues, net |
|
$ |
105,000 |
|
|
$ |
109,543 |
|
|
$ |
442,888 |
|
|
$ |
407,513 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Depreciation and amortization |
|
|
39,278 |
|
|
|
38,533 |
|
|
|
158,626 |
|
|
|
154,807 |
|
Property and operating expense |
|
|
5,995 |
|
|
|
5,707 |
|
|
|
22,576 |
|
|
|
21,773 |
|
General and administrative |
|
|
9,383 |
|
|
|
10,143 |
|
|
|
39,425 |
|
|
|
37,375 |
|
Provision for impairment of investment in rental properties |
|
|
29,801 |
|
|
|
— |
|
|
|
31,274 |
|
|
|
5,535 |
|
Total operating expenses |
|
|
84,457 |
|
|
|
54,383 |
|
|
|
251,901 |
|
|
|
219,490 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other (expenses) income |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest income |
|
|
141 |
|
|
|
127 |
|
|
|
512 |
|
|
|
44 |
|
Interest expense |
|
|
(18,972 |
) |
|
|
(19,665 |
) |
|
|
(80,053 |
) |
|
|
(78,652 |
) |
Gain on sale of real estate |
|
|
6,270 |
|
|
|
15,163 |
|
|
|
54,310 |
|
|
|
15,953 |
|
Income taxes |
|
|
268 |
|
|
|
(104 |
) |
|
|
(763 |
) |
|
|
(1,275 |
) |
Other (expenses) income |
|
|
(1,453 |
) |
|
|
1,464 |
|
|
|
(1,681 |
) |
|
|
5,382 |
|
Net income |
|
|
6,797 |
|
|
|
52,145 |
|
|
|
163,312 |
|
|
|
129,475 |
|
Net income attributable to non-controlling interests |
|
|
(319 |
) |
|
|
(2,463 |
) |
|
|
(7,834 |
) |
|
|
(7,360 |
) |
Net income attributable to Broadstone Net Lease, Inc. |
|
$ |
6,478 |
|
|
$ |
49,682 |
|
|
$ |
155,478 |
|
|
$ |
122,115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average number of common shares outstanding |
|
|||||||||||||||
Basic |
|
|
186,829 |
|
|
|
186,766 |
|
|
|
186,617 |
|
|
|
169,840 |
|
Diluted |
|
|
196,373 |
|
|
|
196,372 |
|
|
|
196,315 |
|
|
|
180,201 |
|
Net earnings per common share |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
0.03 |
|
|
$ |
0.27 |
|
|
$ |
0.83 |
|
|
$ |
0.72 |
|
Diluted |
|
$ |
0.03 |
|
|
$ |
0.26 |
|
|
$ |
0.83 |
|
|
$ |
0.72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income |
|
$ |
6,797 |
|
|
$ |
52,145 |
|
|
$ |
163,312 |
|
|
$ |
129,475 |
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Change in fair value of interest rate swaps |
|
|
(32,989 |
) |
|
|
13,943 |
|
|
|
(17,293 |
) |
|
|
90,560 |
|
Realized loss on interest rate swaps |
|
|
317 |
|
|
|
522 |
|
|
|
1,883 |
|
|
|
2,514 |
|
Comprehensive (loss) income |
|
|
(25,875 |
) |
|
|
66,610 |
|
|
|
147,902 |
|
|
|
222,549 |
|
Comprehensive loss (income) attributable to non-controlling interests |
|
|
1,215 |
|
|
|
(3,147 |
) |
|
|
(7,070 |
) |
|
|
(12,700 |
) |
Comprehensive (loss) income attributable to Broadstone Net Lease, Inc. |
|
$ |
(24,660 |
) |
|
$ |
63,463 |
|
|
$ |
140,832 |
|
|
$ |
209,849 |
|
Reconciliation of Non-GAAP Measures
The following is a reconciliation of net income to FFO, Core FFO, and AFFO for the three months ended December 31, 2023 and September 30, 2023 and for the year ended December 31, 2023 and 2022. 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 Year Ended |
|
||||||||||
(in thousands, except per share data) |
|
December 31,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
December 31,
|
|
||||
Net income |
|
$ |
6,797 |
|
|
$ |
52,145 |
|
|
$ |
163,312 |
|
|
$ |
129,475 |
|
Real property depreciation and amortization |
|
|
39,115 |
|
|
|
38,496 |
|
|
|
158,346 |
|
|
|
154,673 |
|
Gain on sale of real estate |
|
|
(6,270 |
) |
|
|
(15,163 |
) |
|
|
(54,310 |
) |
|
|
(15,953 |
) |
Provision for impairment on investment in rental properties |
|
|
29,801 |
|
|
|
— |
|
|
|
31,274 |
|
|
|
5,535 |
|
FFO |
|
$ |
69,443 |
|
|
$ |
75,478 |
|
|
$ |
298,622 |
|
|
$ |
273,730 |
|
Net write-offs of accrued rental income |
|
|
4,161 |
|
|
|
— |
|
|
|
4,458 |
|
|
|
1,326 |
|
Lease termination fees |
|
|
— |
|
|
|
— |
|
|
|
(7,500 |
) |
|
|
(2,469 |
) |
Cost of debt extinguishment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(341 |
) |
Gain on insurance recoveries |
|
|
— |
|
|
|
— |
|
|
|
3 |
|
|
|
308 |
|
Severance and executive transition costs |
|
|
218 |
|
|
|
740 |
|
|
|
1,622 |
|
|
|
401 |
|
Other expenses (income)(1) |
|
|
1,453 |
|
|
|
(1,464 |
) |
|
|
1,678 |
|
|
|
(5,690 |
) |
Core FFO |
|
$ |
75,275 |
|
|
$ |
74,754 |
|
|
$ |
298,883 |
|
|
$ |
267,265 |
|
Straight-line rent adjustment |
|
|
(5,404 |
) |
|
|
(6,785 |
) |
|
|
(26,736 |
) |
|
|
(21,900 |
) |
Adjustment to provision for credit losses |
|
|
— |
|
|
|
— |
|
|
|
(10 |
) |
|
|
(5 |
) |
Amortization of debt issuance costs |
|
|
983 |
|
|
|
983 |
|
|
|
3,938 |
|
|
|
3,692 |
|
Amortization of net mortgage premiums |
|
|
— |
|
|
|
— |
|
|
|
(78 |
) |
|
|
(104 |
) |
Loss on interest rate swaps and other non-cash
|
|
|
319 |
|
|
|
522 |
|
|
|
1,884 |
|
|
|
2,514 |
|
Amortization of lease intangibles |
|
|
(1,014 |
) |
|
|
(1,056 |
) |
|
|
(5,846 |
) |
|
|
(4,809 |
) |
Stock-based compensation |
|
|
1,401 |
|
|
|
1,540 |
|
|
|
5,972 |
|
|
|
5,316 |
|
Deferred taxes |
|
|
(282 |
) |
|
|
— |
|
|
|
(282 |
) |
|
|
204 |
|
AFFO |
|
$ |
71,278 |
|
|
$ |
69,958 |
|
|
$ |
277,725 |
|
|
$ |
251,969 |
|
Diluted WASO(2) |
|
|
196,373 |
|
|
|
196,372 |
|
|
|
196,315 |
|
|
|
180,201 |
|
Net earnings per diluted share(3) |
|
$ |
0.03 |
|
|
$ |
0.26 |
|
|
$ |
0.83 |
|
|
$ |
0.72 |
|
FFO per share(3) |
|
|
0.35 |
|
|
|
0.39 |
|
|
|
1.52 |
|
|
|
1.52 |
|
Core FFO per share(3) |
|
|
0.38 |
|
|
|
0.38 |
|
|
|
1.52 |
|
|
|
1.48 |
|
AFFO per share(3) |
|
|
0.36 |
|
|
|
0.36 |
|
|
|
1.41 |
|
|
|
1.40 |
|
1 |
Amount includes |
2 |
Excludes 493,524 and 506,172 weighted average shares of unvested restricted common stock for the three months ended December 31, 2023 and September 30, 2023, respectively. Excludes 492,046 and 396,383 weighted average shares of unvested restricted common stock for the year ended December 31, 2023 and 2022, respectively. |
3 |
Excludes |
Our reported results and net earnings per diluted share are presented in accordance with GAAP. We also disclose FFO, Core FFO, and AFFO, each of which are non-GAAP measures. 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 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
We compute Core FFO by adjusting FFO, as defined by Nareit, to exclude certain GAAP income and expense amounts that we believe are infrequently recurring, unusual in nature, or not related to its core real estate operations, including write-offs or recoveries of accrued rental income, lease termination fees, gain on insurance recoveries, cost of debt extinguishments, unrealized and realized gains or losses on foreign currency transactions, severance and executive transition costs, and other extraordinary items. Exclusion of these items from similar FFO-type metrics is common within the equity REIT industry, and management believes that presentation of Core FFO provides investors with a metric to assist in their evaluation of our operating performance across multiple periods and in comparison to the operating performance of our peers, because it removes the effect of unusual items that are not expected to impact our operating performance on an ongoing basis.
We compute AFFO by adjusting Core FFO for certain non-cash revenues and expenses, including straight-line rents, amortization of lease intangibles, adjustment to provision for credit losses, amortization of debt issuance costs, amortization of net mortgage premiums, (gain) loss on interest rate swaps and other non-cash interest expense, deferred taxes, stock-based compensation, and other specified non-cash items. We believe that excluding such items assists management and investors in distinguishing whether changes in our operations are due to growth or decline of operations at our properties or from other factors. We use AFFO as a measure of our performance when we formulate corporate goals, and is a factor in determining management compensation. We believe that AFFO is a useful supplemental measure for investors to consider because it will help them to better assess our operating performance without the distortions created by non-cash revenues or expenses.
Specific to our adjustment for straight-line rents, our leases include cash rents that increase over the term of the lease to compensate us for anticipated increases in market rental rates over time. Our leases do not include significant front-loading or back-loading of payments, or significant rent-free periods. Therefore, we find it useful to evaluate rent on a contractual basis as it allows for comparison of existing rental rates to market rental rates.
FFO, Core FFO, and AFFO may not be comparable to similarly titled measures employed by other REITs, and comparisons of our FFO, Core FFO, and AFFO with the same or similar measures disclosed by other REITs may not be meaningful.
Neither the SEC nor any other regulatory body has passed judgment on the acceptability of the adjustments to FFO that we use to calculate Core FFO and AFFO. In the future, the SEC, Nareit or another regulatory body may decide to standardize the allowable adjustments across the REIT industry and in response to such standardization we may have to adjust our calculation and characterization of Core FFO and AFFO accordingly.
The following is a reconciliation of net income to EBITDA, EBITDAre, and Adjusted EBITDAre, debt to Net Debt and Net Debt to Annualized Adjusted EBITDAre as of and for the three months ended December 31, 2023, September 30, 2023, and December 31, 2022:
|
|
For the Three Months Ended |
|
|||||||||
(in thousands) |
|
December 31,
|
|
|
September 30,
|
|
|
December 31,
|
|
|||
Net income |
|
$ |
6,797 |
|
|
$ |
52,145 |
|
|
$ |
36,773 |
|
Depreciation and amortization |
|
|
39,278 |
|
|
|
38,533 |
|
|
|
45,606 |
|
Interest expense |
|
|
18,972 |
|
|
|
19,665 |
|
|
|
23,773 |
|
Income taxes |
|
|
(268 |
) |
|
|
104 |
|
|
|
105 |
|
EBITDA |
|
$ |
64,779 |
|
|
$ |
110,447 |
|
|
$ |
106,257 |
|
Provision for impairment of investment in rental properties |
|
|
29,801 |
|
|
|
— |
|
|
|
— |
|
Gain on sale of real estate |
|
|
(6,270 |
) |
|
|
(15,163 |
) |
|
|
(10,625 |
) |
EBITDAre |
|
$ |
88,310 |
|
|
$ |
95,284 |
|
|
$ |
95,632 |
|
Adjustment for current quarter investment activity (1) |
|
|
153 |
|
|
|
26 |
|
|
|
1,283 |
|
Adjustment for current quarter disposition activity (2) |
|
|
(156 |
) |
|
|
(400 |
) |
|
|
(440 |
) |
Adjustment to exclude non-recurring and other expenses (income) (3) |
|
|
128 |
|
|
|
740 |
|
|
|
— |
|
Adjustment to exclude net write-offs of accrued rental income |
|
|
4,161 |
|
|
|
— |
|
|
|
— |
|
Adjustment to exclude gain on insurance recoveries |
|
|
— |
|
|
|
— |
|
|
|
(341 |
) |
Adjustment to exclude realized / unrealized foreign exchange
|
|
|
1,453 |
|
|
|
(1,433 |
) |
|
|
796 |
|
Adjustment to exclude cost of debt extinguishments |
|
|
— |
|
|
|
— |
|
|
|
77 |
|
Adjustment to exclude lease termination fees |
|
|
— |
|
|
|
— |
|
|
|
(1,678 |
) |
Adjusted EBITDAre |
|
$ |
94,049 |
|
|
$ |
94,217 |
|
|
$ |
95,329 |
|
Annualized EBITDAre |
|
$ |
353,240 |
|
|
$ |
381,136 |
|
|
$ |
382,528 |
|
Annualized Adjusted EBITDAre |
|
$ |
376,196 |
|
|
$ |
376,868 |
|
|
$ |
381,316 |
|
1 |
Reflects an adjustment to give effect to all investments during the quarter as if they had been made as of the beginning of the quarter. |
2 |
Reflects an adjustment to give effect to all dispositions during the quarter as if they had been sold as of the beginning of the quarter. |
3 |
Amount includes |
(in thousands) |
|
December 31,
|
|
|
September 30,
|
|
|
December 31,
|
|
|||
Debt |
|
|
|
|
|
|
|
|
|
|||
Unsecured revolving credit facility |
|
$ |
90,434 |
|
|
$ |
74,060 |
|
|
$ |
197,322 |
|
Unsecured term loans, net |
|
|
895,947 |
|
|
|
895,633 |
|
|
|
894,692 |
|
Senior unsecured notes, net |
|
|
845,309 |
|
|
|
845,121 |
|
|
|
844,555 |
|
Mortgages, net |
|
|
79,068 |
|
|
|
79,613 |
|
|
|
86,602 |
|
Debt issuance costs |
|
|
8,848 |
|
|
|
9,360 |
|
|
|
10,905 |
|
Gross Debt |
|
|
1,919,606 |
|
|
|
1,903,787 |
|
|
|
2,034,076 |
|
Cash and cash equivalents |
|
|
(19,494 |
) |
|
|
(35,061 |
) |
|
|
(21,789 |
) |
Restricted cash |
|
|
(1,138 |
) |
|
|
(15,436 |
) |
|
|
(38,251 |
) |
Net Debt |
|
$ |
1,898,974 |
|
|
$ |
1,853,290 |
|
|
$ |
1,974,036 |
|
Net Debt to Annualized EBITDAre |
|
5.4x |
|
|
4.9x |
|
|
5.2x |
|
|||
Net Debt to Annualized Adjusted EBITDAre |
|
5.0x |
|
|
4.9x |
|
|
5.2x |
|
|||
We define Net Debt as gross debt (total reported debt plus debt issuance costs) less cash and cash equivalents and restricted cash. We believe that the presentation of Net Debt to Annualized EBITDAre and Net Debt to Annualized Adjusted EBITDAre is useful to investors and analysts because these ratios provide information about gross debt less cash and cash equivalents, which could be used to repay debt, compared to our performance as measured using EBITDAre.
We compute EBITDA as earnings before interest, income taxes and depreciation and amortization. EBITDA is a measure commonly used in our industry. We believe that this ratio provides investors and analysts with a measure of our performance that includes our operating results unaffected by the differences in capital structures, capital investment cycles and useful life of related assets compared to other companies in our industry. We compute EBITDAre in accordance with the definition adopted by Nareit, as EBITDA excluding gains (losses) from the sales of depreciable property and provisions for impairment on investment in real estate. We believe EBITDA and EBITDAre are useful to investors and analysts because they provide important supplemental information about our operating performance exclusive of certain non-cash and other costs. EBITDA and EBITDAre are not measures of financial performance under GAAP, and our EBITDA and EBITDAre may not be comparable to similarly titled measures of other companies. You should not consider our EBITDA and EBITDAre as alternatives to net income or cash flows from operating activities determined in accordance with GAAP.
We are focused on a disciplined and targeted investment strategy, together with active asset management that includes selective sales of properties. We manage our leverage profile using a ratio of Net Debt to Annualized Adjusted EBITDAre, discussed below, which we believe is a useful measure of our ability to repay debt and a relative measure of leverage, and is used in communications with our lenders and rating agencies regarding our credit rating. As we fund new investments using our unsecured revolving credit facility, our leverage profile and Net Debt will be immediately impacted by current quarter investments. However, the full benefit of EBITDAre from new investments will not be received in the same quarter in which the properties are acquired. Additionally, EBITDAre for the quarter includes amounts generated by properties that have been sold during the quarter. Accordingly, the variability in EBITDAre caused by the timing of our investments 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 investments and dispositions had occurred at the beginning of the quarter, (ii) to exclude certain GAAP income and expense amounts that are either non-cash, such as cost of debt extinguishments, realized or unrealized gains and losses on foreign currency transactions, or gains on insurance recoveries, or that we believe are one time, or unusual in nature because they relate to unique circumstances or transactions that had not previously occurred and which we do not anticipate occurring in the future, and (iii) to eliminate the impact of lease termination fees and other items, that are not a result of normal operations. While investments in property developments have an immediate impact to Net Debt, we do not make an adjustment to EBITDAre until the quarter in which the lease commences. 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.
View source version on businesswire.com: https://www.businesswire.com/news/home/20240221682114/en/
Company:
Brent Maedl
Director, Corporate Finance & Investor Relations
brent.maedl@broadstone.com
585.382.8507
Source: Broadstone Net Lease, Inc.
FAQ
What is Broadstone Net Lease, Inc.'s ticker symbol?
What was the AFFO per share for 2023?
How much did the company invest in development fundings in 2023?
How many healthcare properties did the company sell for $253.0 million?
What was the gain over the original purchase price for the properties sold in 2023?
