Broadstone Net Lease, Inc. — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing, not a standalone fourth-quarter report; the summary below focuses on full-year results and year-end position.
Business context
Broadstone is an internally managed REIT that owns and manages primarily single-tenant, long-term net-leased commercial properties. At year-end, its portfolio comprised 804 properties across 44 U.S. states and four Canadian provinces, with 39.1 million rentable square feet. Industrial properties represented 51.5% of annualized base rent (ABR); healthcare 17.1%, restaurants 13.5%, retail 11.5%, and office 6.4%.
- Portfolio occupancy was 99.4%; weighted-average remaining lease term was 10.9 years.
- Contractual rent escalations applied to 97.3% of ABR, with a 2.0% weighted-average annual minimum increase.
- The largest tenant represented 4.0% of ABR; the top 10 tenants represented 19.0%.
Financial results and liquidity
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Lease revenues, net | $407.5 million | $382.9 million | +6.4% |
| Net income | $129.5 million | $109.5 million | +18.2% |
| Net earnings per diluted share | $0.72 | $0.67 | +$0.05 |
| FFO | $273.7 million ($1.52/share) | $256.2 million | +6.8% |
| Core FFO | $267.3 million ($1.48/share) | $230.4 million | +16.0% |
| AFFO | $252.2 million ($1.40/share) | $216.0 million | +16.8% |
| Interest expense | $78.7 million | $64.1 million | +22.6% |
Revenue growth primarily reflected acquisitions, partly offset by dispositions. Net income also benefited from lower impairment charges ($5.5 million versus $28.2 million), partly offset by increased depreciation and interest expense. Operating cash flow was $255.9 million, compared with $244.9 million; investing cash outflow was $859.6 million and financing cash inflow was $636.0 million.
- Year-end gross debt was $2.034 billion and Net Debt was $1.974 billion; Net Debt to Annualized Adjusted EBITDAre was 5.2x, versus 5.1x in 2021.
- Cash and cash equivalents were $21.8 million; restricted cash brought total cash and restricted cash to $60.0 million. Available capacity under the $1.0 billion revolving facility was $802.7 million.
- Management reported compliance with debt covenants and targeted Net Debt to Annualized Adjusted EBITDAre generally below 6.0x on a sustained basis. Credit ratings were Baa2 from Moody’s and BBB from S&P.
- Dividends declared were $1.08 per share and OP Unit for 2022. The board declared a $0.275 per-share quarterly distribution for the first quarter of 2023.
Material changes and notable items
- The company invested approximately $907.2 million in 2022 at a 6.4% weighted-average initial cash capitalization rate and sold eight properties for net proceeds of $57.9 million, recognizing a $16.0 million GAAP gain on sale.
- Interest expense increased as average borrowings and borrowing costs rose. At year-end, 93.5% of debt was fixed or hedged; 32 swaps had $973.8 million aggregate notional value. Management estimated a 1% rate increase would raise annual interest expense by approximately $1.2 million after swaps.
- The $1.0 billion revolving facility was amended to extend maturity to March 2026 and reduce the applicable margin. Two new unsecured term loans totaling $500 million, due in 2027 and 2029, helped refinance prior debt and repay revolver borrowings.
- Equity issuance provided substantial growth capital: the ATM program generated $222.9 million net proceeds, and a 13 million-share forward offering was settled in December. The filing’s summary reports $273.2 million net proceeds for the forward offering, while its detailed disclosure reports $272.6 million; verify the final amount.
- 2021 included a $35.0 million office-lease termination fee connected to a property sale; 2022 termination-fee income was $2.5 million. This materially affects year-over-year revenue comparisons. 2022 also included $5.6 million of unrealized foreign-exchange gain associated primarily with Canadian-dollar revolver borrowings.
- After year-end, the company announced a CEO transition effective February 28, 2023: John Moragne was to become CEO, Ryan Albano President and COO, and Kevin Fennell CFO. The filing also disclosed a subsequent office-property lease termination and sale.
Outlook, risks and contingencies
The filing provides no formal numeric earnings or acquisition guidance. Management expects to fund liquidity needs through operating cash flow, revolving borrowings, debt and equity financing, and selective property sales. Growth depends significantly on acquisition opportunities and continued access to capital; management noted that market conditions may constrain acquisition yields and financing.
- Key risks include tenant default or bankruptcy, particularly because only 15.4% of ABR was from investment-grade-rated tenants; portfolio concentrations by property type and state; lease rollover and re-leasing costs; inflation and interest rates; refinancing and covenant compliance; and competition for acquisitions.
- Six leases representing 1.2% of ABR were scheduled to expire in 2023. Master leases covered 40.8% of total ABR, creating potential multi-property exposure if a tenant defaults.
- Potential tax-protection indemnities associated with taxable sales were estimated at approximately $20.4 million. The company said triggering events were not believed likely in the foreseeable future. A $22.2 million building-expansion funding commitment was expected to be fulfilled in 2023.
- Environmental, climate, catastrophe and insurance risks, REIT qualification and distribution requirements, and the possibility of equity dilution also remain relevant. Management reported no material pending legal proceedings and effective disclosure and financial-reporting controls; the auditor issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Reconcile the forward-equity net proceeds disclosure ($273.2 million in the highlights versus $272.6 million in the detailed note).
- Review the full debt maturity schedule, variable-rate exposure, hedge terms, and the 2026 concentration of scheduled principal maturities.
- Assess tenant credit quality and concentration, especially the large share of unrated tenants and master-lease exposure.
- Evaluate acquisition returns and per-share effects alongside substantial 2022 equity issuance and the company’s leverage target.
- Monitor the CEO and senior-management transition, 2023 lease expirations, and the expected building-expansion funding.