Broadstone Net Lease Inc

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

Three Months Ended March 31, 2024 Compared to Three Months Ended December 31, 2023

Lease Revenues, net

The increase in Lease revenues, net, was primarily attributable to a decrease in the write off of accrued rental income of $1.6 million. Write offs are discrete charges in a quarter related to collection probabilities, and fluctuate quarter to quarter. The increase was partially offset by an increase in bad debt associated with a healthcare tenant on cash-basis.

Operating Expenses

Depreciation and amortization

The decrease in depreciation and amortization for the three months ended March 31, 2024 was primarily due to net dispositions during the quarter.

Provision for impairment of investment in rental properties

The amount of impairment recognized varies quarter-to-quarter based on individual facts and circumstances during the quarter. The following table presents the impairment charges for the respective periods:

The $26.4 million impairment charges during the first quarter of 2024 resulted from changes in the Company’s long-term hold strategy with respect to the individual properties and were based on actual and expected sales prices. The impairments included an additional $15.2 million charge on a healthcare property that was previously impaired during the fourth quarter of 2023. Additionally, we sold a portfolio of 37 clinically-oriented healthcare properties as part of our healthcare portfolio simplification strategy. As these properties were not classified as held-for-sale at our last reporting date, we evaluated the portfolio on an individual property basis, recognizing an $11.2 million impairment on 11 properties sold below carrying value, and a $59.1 million gain on 26 properties sold above carrying value.

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, 2024, we recognized a gain of $59.1 million on the sale of 37 properties, compared to a gain of $6.3 million on the sale of five properties during the three months ended December 31, 2023, excluding the impact of impairments recognized with these sales.

The increase in other income (expense) is due to the fluctuation of realized and unrealized foreign exchange gains/losses. For the three months ended March 31, 2024, there was a $1.7 million foreign exchange gain compared to a $1.5 million foreign exchange loss during the three months ended December 31, 2023.

Net income and Net earnings per diluted share

The increase in net income is primarily attributable to a $52.9 million increase in gain on the sale of real estate, a $3.4 million decrease in impairment, and a $3.1 million increase in other income (expenses).

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

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

Lease Revenues, net

The decrease in Lease revenues, net was primarily attributable to a decrease in lease termination income (Other income from real estate transactions). Lease termination income for the three months ended March 31, 2023 was $7.5 million. There was no lease termination income for the three months ended March 31, 2024. Additionally, the decrease was due to a $2.3 million decrease in the amount of GAAP revenues recorded on a straight-line basis due to net disposition activity in 2023, an increase in write-off of accrued rental income of $2.5 million, and an increase in adjustment to revenue recognized for uncollectible rental amounts of $1.3 million.

Operating Expenses

Depreciation and amortization

The decrease in depreciation and amortization for the three months ended March 31, 2024 was primarily due to net dispositions during the quarter.

Provision for impairment of investment in rental properties

The following table presents the impairment charges for the respective periods:

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

Interest expense

The decrease in interest expense reflects a decrease in average outstanding borrowings. Since March 31, 2023, we decreased total outstanding borrowings by $41.9 million. This was offset by an increase in our weighted average cost of borrowings, relating to our variable-rate USD Revolving Credit Facility borrowings. At March 31, 2024, the one-month SOFR rate was 5.33%, compared with 4.80% at March 31, 2023.

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, 2024, we recognized a gain of $59.1 million on the sale of 37 properties, compared to a gain of $3.4 million on the sale of three properties during the three months ended March 31, 2023.

The increase in other income (expenses) during the three months ended March 31, 2024 was primarily due to a $1.7 million foreign exchange gain recognized on the quarterly remeasurement of our $100 million Canadian Dollars ("CAD") Revolving Credit Facility borrowings, compared to a $0.02 million unrealized foreign exchange loss recognized during the three months ended March 31, 2023.

Net income and Net earnings per diluted share

The increase in net income is primarily due to an increase on gain on sale of real estate of $55.8 million, a $4.0 million decrease in depreciation and amortization, a $2.6 million decrease in interest expense, and a $1.7 million increase in other income (expenses). These factors were partially offset by a $24.9 million increase in provision for impairment of investment in rental properties, and a $13.6 million decrease in lease revenue.

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.