Broadstone Net Lease Inc

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

Three Months Ended September 30, 2024 Compared to Three Months Ended June 30, 2024

Lease Revenues, net

The increase in Lease revenues, net, was primarily attributable to an increase in Other income from real estate transactions related to the settlement of a permanent land easement for an insignificant portion of two of our properties, an increase in reimbursable expenses, with a corresponding offset in Property and operating expenses, and an increase in contractual rent growth in our portfolio. Income from permanent land easements is infrequent in nature and not related to our core real estate operations.

Operating Expenses

Property and operating expense

The increase in property and operating expenses for the three months ended September 30, 2024, was due to an increase in non-reimbursable property expenses related to a decrease in occupancy, along with an increase in reimbursable expenses that have a corresponding offset in Lease revenues, net.

General and administrative

The decrease in general and administrative was primarily due to a decrease in non-capitalized legal transaction costs related to our transitional capital investment transacted during the three months ended June 30, 2024, and a decrease in compensation expense resulting from an employee departure.

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 $1.1 million impairment charges during the third quarter of 2024 resulted from changes in our long-term hold strategy with respect to the individual properties. The impairments during the second and third quarters 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.

The decrease in other income (expense) is due to the fluctuation of realized and unrealized foreign exchange gains/losses. For the three months ended September 30, 2024, there was a $0.9 million foreign exchange loss compared to a $0.7 million foreign exchange gain during the three months ended June 30, 2024.

Net income and Net earnings per diluted share

The increase in net income is primarily attributable to a $2.8 million decrease in the provision for impairment of investment in rental properties, a $2.5 million increase in lease revenues, net, and a $1.2 million decrease in general and administrative expenses. This was partially offset by a $1.7 million increase in property and operating expenses and a $1.7 million decrease 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.

Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 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 nine months ended September 30, 2023 was $7.5 million. There was no lease termination income for the nine months ended September 30, 2024. Additionally, the decrease was due to a $5.9 million decrease in the amount of GAAP revenues recorded on a straight-line basis due to timing difference from first and second quarter dispositions and redeployment of those proceeds in the second and third 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 $3.4 million, and a decrease in contractual rental amounts billed of $1.0 million.

Operating Expenses

Depreciation and amortization

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

Property and operating expense

The increase in property and operating expense for the nine months ended September 30, 2024 was primarily due to an increase in non-reimbursable expenses related to a decrease in occupancy.

General and administrative

The decrease in general and administrative for the nine months ended September 30, 2024 was primarily due to a decrease in severance and employee transition costs, compensation costs, and insurance premiums.

Provision for impairment of investment in rental properties

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

The $31.3 million impairment charges during the nine months ended September 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 our weighted average cost of borrowings, relating to our variable-rate USD Revolving Credit Facility borrowings. At September 30, 2024, the overnight SOFR rate was 4.96% compared with the one-month SOFR rate of 5.32% at September 30, 2023. Additionally, we had a lower average outstanding balance of our variable rate debt for the nine months ended September 30, 2024 compared to the nine month ended September 30, 2023. The decreased total outstanding borrowings is primarily due to the use of proceeds from dispositions to pay down the Revolving Credit Facility.

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 nine months ended September 30, 2024, we recognized a gain of $65.0 million on the sale of 46 properties, compared to a gain of $48.0 million on the sale of nine properties during the nine months ended September 30, 2023.

The increase in other income (expenses) during the nine months ended September 30, 2024 was primarily due to a $1.5 million foreign exchange gain recognized on the quarterly remeasurement of our $100 million Canadian Dollars (“CAD”) Revolving Credit Facility borrowings, compared to a $0.2 million unrealized foreign exchange loss recognized during the nine months ended September 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 $29.8, a decrease in lease revenues, net of $18.2 million, and an increase in property and operating expenses of $1.4 million. These are offset by an increase in the gain on sale of real estate of $16.9 million, an increase in interest expense of $6.6 million, a decrease in depreciation and amortization of $6.2 million, a decrease in general and administrative expenses of $2.0 million, and an increase in other income (expenses) of $1.7 million.

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.