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Broadstone(BNL) - 2023 Q4 - Annual Report
BNLBroadstone(BNL)2024-02-21 16:00
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Financial Performance and Condition - The company recorded impairment charges related to certain properties for the years ended December 31, 2023, 2022, and 2021, which may impact future financial results [2]. - As of December 31, 2023, total mortgages amounted to 79.173million,downfrom79.173 million, down from 86.754 million in 2022, reflecting a decrease of approximately 8.2% [4]. - The company has a total investment in rental property of 120.5millionpledgedascollateralagainstitsmortgages[5].−Taxprotectionagreementscoveringthreepropertiescouldtriggeraliabilityofapproximately120.5 million pledged as collateral against its mortgages [5]. - Tax protection agreements covering three properties could trigger a liability of approximately 10.4 million based on values as of December 31, 2023 [7]. - As of December 31, 2023, the company had approximately 1.9billioninoutstandingprincipalbalanceofindebtedness,whichmayexposeittodefaultrisksunderitsdebtobligations[20].−Thetotalunsecureddebt,net,asofDecember31,2023,is1.9 billion in outstanding principal balance of indebtedness, which may expose it to default risks under its debt obligations [20]. - The total unsecured debt, net, as of December 31, 2023, is 1,831.7 million, a decrease from 1,936.6millionin2022[34].−TheweightedaverageinterestrateonalloutstandingborrowingsasofDecember31,2023,is5.331,936.6 million in 2022 [34]. - The weighted average interest rate on all outstanding borrowings as of December 31, 2023, is 5.33% [35]. - The company has a total of 900.0 million in unsecured term loans as of December 31, 2023, with varying interest rates based on one-month adjusted SOFR [34]. - The company has a total of 850.0millioninseniorunsecurednotes,withvaryinginterestratesandmaturities[34].RisksandLiabilities−Thecompanymayfacesignificantenvironmentalliabilitiesassociatedwithproperties,whichcouldadverselyaffectitsfinancialconditionandresultsofoperations[12].−Thecompanymayengageindevelopmentorexpansionprojects,whichcouldexposeittoadditionalrisks,includingconstructiondelaysandcostoverruns[13].−Thedepartureofkeypersonnelcouldadverselyaffectthecompany′sbusinessandinvestmentopportunities[14].−Thecompanyissubjecttovariouseconomicrisks,includinghighinflationandrisinginterestrates,whichcouldadverselyaffecttenants′abilitytomakerentalpaymentsandoverallfinancialperformance[16].−Thecompanyfacesrisksrelatedtoclimatechange,whichcouldleadtoincreasedcostsanddecreaseddemandforcertainproperties,impactingoverallbusinessoperations[18].−Increasedcompetitionforrealpropertyinvestmentsmayaffectthecompany′sabilitytoacquirenewpropertiesandmaintainexistingtenants[16].−Thecompanymayincurmortgagedebtonproperties,whichincreasestheriskoflossandpotentialforeclosureactionsbylenders[23].−Thecompanymayfacea100850.0 million in senior unsecured notes, with varying interest rates and maturities [34]. Risks and Liabilities - The company may face significant environmental liabilities associated with properties, which could adversely affect its financial condition and results of operations [12]. - The company may engage in development or expansion projects, which could expose it to additional risks, including construction delays and cost overruns [13]. - The departure of key personnel could adversely affect the company's business and investment opportunities [14]. - The company is subject to various economic risks, including high inflation and rising interest rates, which could adversely affect tenants' ability to make rental payments and overall financial performance [16]. - The company faces risks related to climate change, which could lead to increased costs and decreased demand for certain properties, impacting overall business operations [18]. - Increased competition for real property investments may affect the company's ability to acquire new properties and maintain existing tenants [16]. - The company may incur mortgage debt on properties, which increases the risk of loss and potential foreclosure actions by lenders [23]. - The company may face a 100% penalty tax on net income from prohibited transactions, which could limit its ability to engage in certain sales [31]. - The company may be liable for tax obligations of certain members of the OP, which could limit the economic feasibility of selling properties [38]. Compliance and Regulatory Issues - Changes in accounting standards may materially and adversely affect the company's reported financial condition and results of operations [3]. - Compliance with new laws and regulations may require significant expenditures, potentially reducing returns for stockholders [19]. - The company must distribute at least 90% of its REIT taxable income each year to maintain its REIT status, which may require raising funds if cash flow is insufficient [30]. - Compliance with REIT requirements may force the company to liquidate or forgo attractive investments, potentially reducing income and increasing tax liabilities [37]. - The company inherited any unpaid tax liabilities from the Blocker Corps, which could impact its financial position [39]. - Changes to U.S. federal income tax laws could adversely affect the company's tax treatment and stockholder interests [40]. Debt and Financing - As of December 31, 2023, the company has future mortgage obligations totaling 1.92 billion, with the largest portion due in 2026 at 507.277million[6].−Thecompany’smortgageshavevaryinginterestrates,withthehighestbeing6.38507.277 million [6]. - The company’s mortgages have varying interest rates, with the highest being 6.38% and the lowest at 3.62% [4]. - The company is monitoring risks associated with transitioning its Canadian dollar-denominated debt to a new alternative rate following the recommendation to cease CDOR publication after June 30, 2024 [23]. - The company intends to maintain a level of Net Debt generally less than 6.0x its Annualized Adjusted EBITDAre, although this ratio may exceed 6.0x from time to time [24]. - The company’s financial covenants require it to maintain certain financial ratios, and failure to comply could result in accelerated repayment obligations [22]. - Disruptions in financial markets could hinder the company's ability to obtain debt financing on favorable terms, impacting its investment strategy [21]. - The company is in compliance with all loan covenants as of December 31, 2023, which is crucial to avoid defaults that could restrict dividend payments [34]. Market and Stock Performance - The market price and trading volume of the company's common stock may be volatile, influenced by factors unrelated to its operating performance [41]. - Future offerings of debt or preferred equity securities may adversely affect the market price of the company's common stock and dilute existing stockholders' interests [44]. - The company may not be able to make expected cash distributions to stockholders due to insufficient cash flow from properties or restrictions from debt agreements [43]. - A 1% increase in market interest rates would result in a decrease in the fair value of fixed-rate debt by approximately 65.9 million [122]. - A 10% increase or decrease in the exchange rate between the Canadian dollar and USD would result in a 7.5millionincreaseordecreaseinunrealizedforeigncurrencygainorloss[122].CorporateGovernance−Thecompany’sCharterrestrictsownershipbyonepersonorentitytonomorethan9.87.5 million increase or decrease in unrealized foreign currency gain or loss [122]. Corporate Governance - The company’s Charter restricts ownership by one person or entity to no more than 9.8% of the value of its outstanding shares, which may deter potential takeover offers [24]. - The company’s Board of Directors has the authority to issue up to 520,000,000 shares of stock and may amend the Charter without stockholder approval, potentially diluting common stock value [24]. - The company’s ability to recover damages from directors and officers is limited under Maryland law, which may reduce stockholders' rights [25]. - The company relies on distributions from the Operating Partnership (OP) to meet obligations and pay dividends, making it structurally subordinated to the OP's liabilities [28]. Litigation and Legal Risks - The company may face substantial costs and management distractions from potential securities class action litigation following stock price volatility [41]. - The company estimates a built-in gain of approximately 56.4 million related to the Blocker Corps' assets, which could trigger corporate income tax if disposed of in a taxable transaction within five years [39]. - The company must distribute earnings and profits accumulated in a non-REIT year before the end of the taxable year following the acquisition of a C corporation [39].