Broadstone Net Lease Inc

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

Three Months Ended June 30, 2024 Compared to Three Months Ended March 31, 2024

Lease Revenues, net

The increase in Lease revenues, net, was primarily attributable to a decrease in the write off of accrued rental income of $2.6 million. Write offs are discrete charges in a quarter related to collection probabilities, and fluctuate quarter to quarter. The increase was partially offset by a decrease in contractual rental amounts of $1.8 million, primarily due to the timing of the majority of our 2024 dispositions which occurred at the end of the three months ended March 31, 2024, compared to our redeployment into new properties which occurred during the three months ended June 30, 2024.

Operating Expenses

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 $3.9 million impairment charges during the second quarter of 2024 resulted from changes in our long-term hold strategy with respect to the individual properties. The impairments during the first and second quarter of 2024 primarily related to our strategic decision to sell our clinically-oriented healthcare properties as part of our healthcare portfolio simplification strategy. The timing and amount of impairment fluctuates from period to period depending on the specific facts and circumstances.

Gain on sale of real estate

Our recognition of a gain or loss on the sale of real estate varies from transaction to transaction based on fluctuations in asset prices and demand in the real estate market. During the three months ended June 30, 2024, we recognized a gain of $3.4 million on the sale of three properties, compared to a gain of $59.1 million on the sale of 37 properties during the three months ended March 31, 2024, 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 June 30, 2024, there was a $0.7 million foreign exchange gain compared to a $1.7 million foreign exchange gain during the three months ended March 31, 2024.

Net income and Net earnings per diluted share

The decrease in net income is primarily attributable to a $55.7 million decrease in gain on the sale of real estate which was offset by a $22.5 million decrease in provision for impairment of investment in rental properties.

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.

Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 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 six months ended June 30, 2023 was $7.5 million. There was no lease termination income for the six months ended June 30, 2024. Additionally, the decrease was due to a $4.5 million decrease in the amount of GAAP revenues recorded on a straight-line basis due to timing difference from first quarter dispositions and redeployment of those proceeds in the second quarter, an increase in write-off of accrued rental income of $2.5 million, an increase in adjustment to revenue recognized for uncollectible rental amounts of $2.1 million, and a decrease in contractual rental amounts billed of $1.3 million.

Operating Expenses

Depreciation and amortization

The decrease in depreciation and amortization for the six months ended June 30, 2024 was primarily due to net dispositions during the first quarter of 2024 and the timing of redeployment into new properties during the second quarter of 2024.

Provision for impairment of investment in rental properties

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

The $30.3 million impairment charges during the six months ended June 30, 2024 resulted from changes in the Company’s long-term hold strategy with respect to the individual properties and were primarily based on actual and expected sales prices. Such impairments primarily related to our strategic decision to sell our clinically-oriented healthcare properties as part of our healthcare portfolio simplification strategy. 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 June 30, 2023, we decreased total outstanding borrowings by $46.0 million primarily through proceeds from dispositions. This was partially offset by an increase in our weighted average cost of borrowings, relating to our variable-rate USD Revolving Credit Facility borrowings. At June 30, 2024, the one-month SOFR rate was 5.34%, compared with 5.14% at June 30, 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 six months ended June 30, 2024, we recognized a gain of $62.5 million on the sale of 40 properties, compared to a gain of $32.9 million on the sale of seven properties during the six months ended June 30, 2023.

The increase in other income (expenses) during the six months ended June 30, 2024 was primarily due to a $2.4 million foreign exchange gain recognized on the quarterly remeasurement of our $100 million Canadian Dollars (“CAD”) Revolving Credit Facility borrowings, compared to a $1.7 million unrealized foreign exchange loss recognized during the six months ended June 30, 2023.

Net income and Net earnings per diluted share

The decrease in net income is primarily due to an increase in the provision for impairment of investment in rental properties of $28.8 million and a decrease total lease revenue of $17.1 million. These factors were partially offset by a $29.6 million increase in gain on sale of real estate, a decrease of $5.6 million in depreciation and amortization, a decrease of $5.1 million in interest expense, and a $4.1 million increase in other income (expense).

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.