Business Context and Reporting Period
This Form 8-K Current Report for Broadstone Net Lease, Inc. covers events occurring on June 29, 2018, and July 2, 2018. The Company, a Maryland corporation, operates as a net lease real estate investment trust. The filing details the entry into a material definitive agreement for debt financing and the completion of a monthly closing for its ongoing private equity offering.
Key Financial Metrics and Capital Activities
Debt Financing (Senior Notes)
- Total Principal Amount: $325 million aggregate principal amount of unsecured, fixed-rate, interest-only senior notes.
- Series B Notes: $225 million total; 5.09% interest rate; 10-year term maturing July 2, 2028. $100 million issued July 2, 2018; remaining $125 million to be issued September 13, 2018.
- Series C Notes: $100 million total; 5.19% interest rate; 12-year term maturing July 2, 2030. $50 million issued July 2, 2018; remaining $50 million to be issued September 13, 2018.
- Interest Payment: Semi-annually in arrears beginning January 2, 2019.
- Default Rate: Increases to the greater of 7.09% (Series B) or 7.19% (Series C) upon an Event of Default.
Equity Financing
- June 29, 2018 Closing: Sold 180,722.894 shares of common stock at a weighted average price of $83.00 per share.
- Proceeds: $15,000,000.00.
- Outstanding Shares: 20,239,072.926 shares as of June 29, 2018.
- Subscription Queue: Approximately $9,382,177.93 in subscriptions held for subsequent closings at $83.00 per share.
- DRIP Activity: 52,632.600 shares issued on June 15, 2018, generating $4,281,132.89 in proceeds at $81.34 per share.
Material Changes and Use of Proceeds
The Company entered into a Note and Guaranty Agreement (NGA) creating a new $325 million debt facility. The proceeds from the Senior Notes are intended for general corporate purposes, including refinancing existing indebtedness and funding potential acquisitions. The equity proceeds from the June 29 closing are intended to invest in additional net leased properties and for general corporate purposes, supplemented by additional borrowings.
Guidance, Risks, and Covenants
Covenants and Restrictions
The NGA includes customary restrictive covenants limiting additional indebtedness, liens, payments, investments, and certain transactions (mergers, asset sales). Financial maintenance covenants include a maximum leverage ratio, maximum secured indebtedness ratio, minimum fixed charge coverage ratio, and a maximum ratio of total unsecured indebtedness to total unencumbered eligible property value.
Risks and Contingencies
- Prepayment: The Operating Company may prepay notes at 100% of principal plus a make-whole amount, subject to minimum partial prepayment thresholds of 5.0% of the series aggregate principal.
- Default Consequences: Events of Default may result in acceleration of obligations and increased interest rates.
- Related Party Transactions: Placement agents and their affiliates may perform future banking and advisory services for the Company and may enter into derivative arrangements.
The filing does not provide specific forward-looking guidance on revenue, profit, or cash flow projections for future periods.
Investor Verification Checklist
- Verify the final issuance dates and amounts for the remaining $125 million of Series B Notes and $50 million of Series C Notes scheduled for September 13, 2018.
- Review the full text of the Note and Guaranty Agreement (Exhibit 10.1) to understand specific definitions of "Event of Default" and the calculation of the make-whole prepayment amount.
- Confirm the Company's current leverage ratios and fixed charge coverage ratios to ensure compliance with the new financial maintenance covenants.
- Monitor the status of the $9.38 million in queued equity subscriptions to assess near-term capital raising capacity.
- Check subsequent filings for details on how the $325 million debt proceeds are allocated between refinancing and new acquisitions.