Sale and leaseback – Last Jeudi http://lastjeudi.org/ Tue, 17 May 2022 06:38:56 +0000 en-US hourly 1 https://wordpress.org/?v=5.9.3 https://lastjeudi.org/wp-content/uploads/2021/03/cropped-icon-1-32x32.png Sale and leaseback – Last Jeudi http://lastjeudi.org/ 32 32 SNF REIT holding at 12% https://lastjeudi.org/snf-reit-holding-at-12/ Tue, 17 May 2022 04:10:58 +0000 https://lastjeudi.org/snf-reit-holding-at-12/ Last year, real estate investment trusts owned about 12% of all skilled nursing facilities, a level that Harvard researchers say should push policymakers to “ensure the REIT business model is compatible.” with» health goals. Ownership of skilled nursing REITs exceeded that of hospitals (3% nationally), medical office buildings (9%), and senior and assisted living facilities […]]]>

Last year, real estate investment trusts owned about 12% of all skilled nursing facilities, a level that Harvard researchers say should push policymakers to “ensure the REIT business model is compatible.” with» health goals.

Ownership of skilled nursing REITs exceeded that of hospitals (3% nationally), medical office buildings (9%), and senior and assisted living facilities (9%).

The researchers behind a new JAMA Health Forum storytelling study McKnight’s On Monday, they weren’t necessarily surprised by the results of their analysis, which looked at publicly available data, due to “the major influence of private equity and other financial investments in NFCs”. .

But the findings underscore the need to understand how financial pressures might drive REITs to act, and whether their self-interests and the interests of investors align with patient health outcomes.

“There is concern that FPI ownership of healthcare institutions diverts capital from investments in the delivery of clinical care toward generating high returns for investors,” reported the researchers, led by Joseph Dov Bruch, Ph.D. ., visiting scholar at Harvard. Faculty of Medicine Health Care Policy Department.

“To our knowledge, there is no research quantifying the association of IPFs with quality of care, patient costs, and financial security for healthcare providers. Policymakers and healthcare operators need to ensure that the REIT’s business model is compatible with long-term healthcare delivery priorities.

Lack of data for FNS

Although the team found that FPI ownership of hospitals increased for 15 years before dropping during COVID, but the researchers did not have the same data for SNFs. However, in the comments of McKnight’s, Bruch called on policymakers to assess whether REIT acquisitions affect staffing levels; financial results such as margins, debt and patient charges; and quality indicators.

The researchers also noted an association between FPI investment and for-profit operations and skilled nursing facilities in urban settings; and pointed to the potential financial stress associated with the triple net sale-leaseback mechanism. Additionally, the team illustrated how financial pressures on REIT-owned NFCs could lead to access issues, drawing attention to the closure of HCR Manor Care in 2018 after that company sold all of its real estate assets. massive amounts to a REIT.

But the American Health Care Association pushed back on Monday, saying McKnight’s that case studies show that “high-quality nursing home companies have established successful relationships with REITs with lease-management payments.” During the pandemic, some REITs delayed or changed lease payments as nursing home occupancy rates bottomed out.

“REITs can also open doors for some long-term care professionals who want to manage their own buildings, but don’t have the capital to buy the real estate,” the AHCA noted in an email. “NITs are not inherently bad and, as the study found, they have an extremely small footprint in the skilled nursing sector. … We think the bigger issue is the need for state and federal authorities to properly and consistently fund long-term care, so providers don’t feel pressured to seek other investments to keep their facilities afloat. Policymakers can also ensure everyone is focused on the right thing by leveraging incentive programs that encourage providers and investors to create great patient outcomes.

These comments were taken up this week in a new New England Journal of Medicine perspective written by Rachel Werner, MD, PH.D., of the Leonard Davis Institute of Health Economics, and other health policy experts David Grabowski, Ph.D., R. Tamara Konetzka, Ph.D., and David G. Stevenson, Ph.D.

Reiterating their contributions to the national imperative to improve nursing home quality, the researchers called for a combination of improved funding for long-term care, a new approach to nursing home payments, and transparency and accountability that push providers to do more than focus on meeting minimum standards.

“Data on nursing home ownership and financing, including facility expenditures on direct care, remain incomplete and difficult to use,” they wrote.

“The challenges of monitoring spending are exacerbated by the increasing complexity of retirement home ownership practices, making it virtually impossible to understand where and how facilities are spending their resources, including whether they are paying premium services such as rent, management, nursing, or therapy by contracting with related organizations,” they added.

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Will Target disappoint investors on Wednesday? https://lastjeudi.org/will-target-disappoint-investors-on-wednesday/ Sun, 15 May 2022 11:50:00 +0000 https://lastjeudi.org/will-target-disappoint-investors-on-wednesday/ Ininvestors have serious concerns as they approach Targetit is (NYSE: TGT) earnings report for the first quarter of 2022 (ended April 30) on Wednesday. While the retailer is expected to report strong sales trends through early 2022, that pace of growth could slow due to new pressures such as inflation. Target also faces a tough […]]]>

Ininvestors have serious concerns as they approach Targetit is (NYSE: TGT) earnings report for the first quarter of 2022 (ended April 30) on Wednesday. While the retailer is expected to report strong sales trends through early 2022, that pace of growth could slow due to new pressures such as inflation. Target also faces a tough comparison to the surge in earnings a year ago.

Let’s take a closer look at how the channel might impress investors with its next announcement on May 18.

Image source: Getty Images.

Growing market share in several niches

Most investors following the stock expect Target to post modest sales gains, with revenue hitting about $24.4 billion, up from $24.2 billion a year ago. That little boost would still be impressive, given that sales at the start of 2021 soared thanks to financial stimulus payments and a rapidly expanding economy. These factors won’t be repeated in 2022, so investors will be happy to see even slight gains in sales on Wednesday.

Watch CEO Brian Cornell and his team point out Target’s growing market share in several attractive niches like beauty and skincare, home furnishings and apparel. Potential disappointments could come in the form of weak e-commerce sales compared to a year ago.

Target could blame supply chain issues and inflation for putting pressure on growth. Demand may also shift away from more profitable niches like home furnishings and toward essentials like groceries, which generate lower margins.

Lower profits expected

A key factor in Target’s stock outperformance during the pandemic has been its industry-beating profit margin. Shoppers have flocked to its premium brands and super-fast delivery options, helping to push margins well above those of peers like walmart and Costco.

A big concern today is that this process will reverse as buying trends return to normal. After all, fewer people rely on home deliveries and consumers may be looking to save money by switching brands.

Executives warned in February that investors should not expect a repeat of last year’s double-digit operating margin. But it’s possible that Target’s profitability will remain higher than it was before the pandemic.

Investors looking for updated insights

Management’s growth outlook in this report called for sales to increase by approximately 5% in 2022, with operating margin reaching 8%. Both forecasts could change to reflect new pressures such as accelerating inflation and a decline in e-commerce demand. Still, Target’s long-term goals aren’t likely to budge.

The retailer has a good chance of steadily increasing sales while remaining solidly profitable, even if consumer spending slows in 2023. This predictability is a key reason the stock has risen over the past year, even though the broader market was down about 3%.

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Pandemic continues to hamper shipping companies – The Royal Gazette https://lastjeudi.org/pandemic-continues-to-hamper-shipping-companies-the-royal-gazette/ Fri, 13 May 2022 17:23:30 +0000 https://lastjeudi.org/pandemic-continues-to-hamper-shipping-companies-the-royal-gazette/ The Covid-19 pandemic is still causing operational challenges in the shipping industry, reported Bermuda-based tanker company DHT Holdings Inc. DHT said the pandemic is hampering its sailors and the ability to change crew at regular intervals and at convenient locations. The company said: “The situation has improved but several areas still have restrictions affecting crew […]]]>

The Covid-19 pandemic is still causing operational challenges in the shipping industry, reported Bermuda-based tanker company DHT Holdings Inc.

DHT said the pandemic is hampering its sailors and the ability to change crew at regular intervals and at convenient locations.

The company said: “The situation has improved but several areas still have restrictions affecting crew changes with transit and quarantine procedures, limiting the number of geographic options for executing crew changes.”

DHT said the near-term market outlook is affected by the Covid-19 situation in China and its lockdowns have delayed demand recovery.

He added: “This coincides with an inflationary environment, and in particular high oil and gas prices, weighing on some economic activities and oil demand.”

DHT said trade disruptions resulting from the Russian-Ukrainian conflict are lengthening shipping distances and supporting some freight routes for smaller vessels.

He added: “Trade disruptions are also changing the supply of refined petroleum products, supporting freight rates for tankers. This comes at a time when inventories of crude oil and refined products are low, perhaps suggesting that demand for raw materials and therefore crude oil transportation will improve in the not too distant future.

The company has agreed to sell DHT Hawk, built in 2007, and DHT Falcon, built in 2006, for $40 million and $38 million, respectively.

Sales are expected to generate a combined profit of approximately $12 million.

The company will repay outstanding debt on both vessels, approximately $13 million in total.

So far in the second quarter, 69% of available days for very large crude oil carriers have been booked at an average rate of $24,800 per day on a landfill-to-landload basis (not including potential splits profits on time charters).

***

Teekay Tankers Ltd, the Bermuda-based owner and operator of mid-size tankers, announced strong tanker spot rates in the second quarter of $27,400 per day for the Suezmax fleet, $30,900 per day for the Aframax fleet and $30,400 per day for the Fleet LR2.

The company sold three older ships for a total of $44 million.

Teekay completed previously announced refinancings of 13 vessels with new low-cost sale-leaseback financings that increased the company’s liquidity position by approximately $75 million.

The company said tanker spot rates were relatively low in the first two months of the year due to the impact of the Omicron variant Covid-19 on oil demand, a growth in oil supply lower than forecast due to temporary production stoppages and high crude oil prices. which resulted in increased bunker costs.

However, he added: “Russia’s invasion of Ukraine at the end of February caused tanker prices to spike, particularly in the Aframax and Suezmax sectors, due to trade disruptions and rerouting of cargo.

“Since then, the tanker market has shown significant rate volatility and higher tanker spot rates.

“While the near term outlook is highly uncertain, the longer term outlook appears positive due to a small tanker order book, very low levels of tanker orders and an aging global tanker fleet, which together are expected to lead to a long period of very low tanker fleet growth.

***

Flex LNG Ltd, the Bermuda-based liquefied natural gas transmission company, signed a $375 million term and revolving credit facility in the first quarter, with an accordion option to increase it by $125 million, secured by an additional vessel.

The facility will be secured by the Flex Ranger, Flex Rainbow and Flex Endeavor vessels, while Flex Enterprise is a candidate for the accordion option.

Last month, Flex Ranger and Flex Rainbow completed their refinancing with net cash provided to the company of $11.5 million.

Also in April, the company signed sale-leaseback agreements totaling $320 million for the refinancing of the existing facility for the Flex Constellation and Flex Courageous vessels.

The funding is expected to free up approximately $99.6 million for the company.

***

Nordic American Tankers Ltd has taken delivery of a new Suezmax tanker from Samsung Heavy Industries in South Korea.

The Bermuda-based oil company said the vessel was named Nordic Harrier, which was the name of the first NAT vessel when the company listed on the New York Stock Exchange in 1995.

The vessel will begin a six-year contract with Asyad Shipping Company of the Sultanate of Oman.

NAT said: “The contract is generating profits and cash flow from the delivery of the site, creating financial stability and further anchoring in this important area.

“Another new construction from Samsung is coming at the end of June. This ship also has a six-year contract with the Sultanate of Oman.

“Our experience over many years is that everything is on schedule when the Samsung shipyard is involved.”

Flex Enterprise: part of the Flex LNG Ltd fleet

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Sale-leaseback agreement to pay for 14 flynas A320neo https://lastjeudi.org/sale-leaseback-agreement-to-pay-for-14-flynas-a320neo/ Thu, 12 May 2022 02:00:00 +0000 https://lastjeudi.org/sale-leaseback-agreement-to-pay-for-14-flynas-a320neo/ Riyadh-based Flynas is to finance the purchase of 14 Airbus A320neo jets through sale-leaseback agreements with three aircraft lessors. The low-cost airline announced the deal this week in Riyadh at the Future of Aviation Forum. The 14 narrow-body planes, with a list price of $1.4 billion, are part of a much larger order from Airbus. […]]]>

Riyadh-based Flynas is to finance the purchase of 14 Airbus A320neo jets through sale-leaseback agreements with three aircraft lessors. The low-cost airline announced the deal this week in Riyadh at the Future of Aviation Forum. The 14 narrow-body planes, with a list price of $1.4 billion, are part of a much larger order from Airbus.

Big growth plans for Saudi Arabia’s flynas

As of March 31, flynas had a relatively small fleet of 39 narrow-body Airbuses serving 55 international destinations and 35 domestic destinations. But flynas has never shied away from his growth aspirations. It has ordered another 89 planes from Toulouse and said in March it wanted to order another 250 planes to become the Middle East’s largest low-cost airline.

“From our position as a Saudi air carrier, we see great opportunities for expansion supported by the Kingdom’s strategic location and the prospects opened up by Saudi Vision 2030 for the air transport sector”, said flynas CEO and MD Bander Almohanna at the time. “This is reinforced by the launch of the Civil Aviation Strategy, which aims to increase annual passenger traffic to 330 million and connect the Kingdom of Saudi Arabia to more than 250 destinations worldwide by 2030.” .

CEO of Flynas and MD Bander Almohanna. Photo: flynas

Sale-leaseback agreement frees up capital to fund future growth

Six weeks later, the airline has yet to activate the discussion with a firm order. In the meantime, flynas needs to finance its existing order. This week’s deal locks in payment for 14 of the A320neos due from Toulouse. The 14 aircraft are expected to arrive in Riyadh by the end of 2023. The three lessors who accepted the sale-leaseback agreement were CBD Aviation, CMB Financial Leasing and Avolon Holdings.

A sale-leaseback agreement is relatively simple. The airline, in this case flynas, sells an aircraft to a lessor and leases it immediately. The lessor effectively acts as a de facto financier or bank. An Airbus A320neo has a list price of US$110 million (although you can safely assume flynas didn’t pay that much). But regardless of how much flynas has to pay on the delivery date, it’s still a big blow to the airline’s bottom line. In a sale-leaseback arrangement, the airline avoids large capital expenditures in favor of a smaller stream of monthly lease payments.

All of this freed-up capital will help fund the airline’s growth plans. Announcing the deal this week, Bander Almohanna said the agreements “support flynas’ strategy of local and international expansion” with the aim of achieving those 2030 goals.

flynas plans to build its fleet up to 250 aircraft by 2030. Photo: flynas

Busy week for flynas CEO

It’s been a busy week for Bander Almohanna. He also confirmed that flynas had secured a $225 million Murabaha corporate finance facility (Murabaha is an Islamic finance structure) to help this growth trajectory.

“The funding program will support flynas’ ambitious future growth plans to become the largest and most important independent low-cost airline in the Middle East and North Africa region,” he said to a presser. Credit Suisse has spearheaded a syndicate of several Saudi banks ready to release the money.

“The agreement will also improve the efficiency of the air transport sector in the Kingdom of Saudi Arabia and further confirm flynas’ ability to play an instrumental role in realizing this strategy,” he added. added the CEO of flynas.

Source: Bloomberg


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The Eurazeo green fund supports a first project https://lastjeudi.org/the-eurazeo-green-fund-supports-a-first-project/ Tue, 10 May 2022 12:37:48 +0000 https://lastjeudi.org/the-eurazeo-green-fund-supports-a-first-project/ The EIF investment of €70m brings the fund to €200m after five months, more than half of ESMI’s target of €350m. Once at scale, Eurazeo expects to be able to support 50 European operators of small and medium-sized ships in their decarbonization objectives. Targeted investment areas include ships with environmentally friendly technologies, innovative port equipment […]]]>

The EIF investment of €70m brings the fund to €200m after five months, more than half of ESMI’s target of €350m. Once at scale, Eurazeo expects to be able to support 50 European operators of small and medium-sized ships in their decarbonization objectives.

Targeted investment areas include ships with environmentally friendly technologies, innovative port equipment and infrastructure, and assets that support the development of offshore renewable energy.

The first project supported by the fund is the financing of a jack-up vessel for offshore wind farms. The vessel will be used for the construction, repair and maintenance of European offshore wind farms and will be financed under a sale-leaseback agreement for the Harren & Partner group.

Euorazeo said the vessel is currently in the North Sea working on Germany’s 54-turbine Nordsee One wind farm.

ESMI was the first green leasing fund supported by the EIF through the European Fund for Strategic Investments (EFSI) SME-friendly private credit scheme; The EIF reaches out to investors including public bodies, insurers, corporations, private sales networks and international investors.

The impact of the fund’s investments will be measured using quantitative emission reduction indicators using a methodology reviewed by independent experts and audited annually by a third party.

Alain Godard, CEO of the EIF, said: “Our cooperation with Eurazeo, with the support of the EFSI, demonstrates Europe’s strong commitment to improving access to finance for small and medium-sized enterprises in Europe. Given the EU Green Deal and the focus on sustainability in the Multiannual Financial Framework, this operation provides support for an alternative lender as part of the EU’s green transition.”

Sylvain Makaya, Partner at Eurazeo, declared: “At a time when we must at least halve emissions by 2030 to hope to limit global warming to 1.5°C, we are committed to being an active contributor to the solution by deploying significant funds like ESMI. that provide a response to environmental and climate issues.

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Broadstone Net Lease Trading at a Discount, but Better Opportunities Elsewhere (NYSE: BNL) https://lastjeudi.org/broadstone-net-lease-trading-at-a-discount-but-better-opportunities-elsewhere-nyse-bnl/ Sat, 07 May 2022 13:00:00 +0000 https://lastjeudi.org/broadstone-net-lease-trading-at-a-discount-but-better-opportunities-elsewhere-nyse-bnl/ Imaginima/E+ via Getty Images Thesis: A solid portfolio, but better opportunities available Broadstone Net Lease (NYSE: BNL) is a highly diversified net leasehold real estate investment trust (“REIT”) that has been investing in space for approximately 15 years but has only gone public on the NYSE in 2020. Year-to-date, BNL has outsold the Vanguard Real […]]]>

Imaginima/E+ via Getty Images

Thesis: A solid portfolio, but better opportunities available

Broadstone Net Lease (NYSE: BNL) is a highly diversified net leasehold real estate investment trust (“REIT”) that has been investing in space for approximately 15 years but has only gone public on the NYSE in 2020.

Year-to-date, BNL has outsold the Vanguard Real Estate ETF (VNQ) as well as the NETLease Corporate Real Estate ETF (NETL), with the newcomer net lease down almost 20%.

Chart
Data by YCharts

This is despite BNL’s portfolio focus on above-average rent increases and strong rent collection statistics during the pandemic.

In my view, the market has discounted BNL more than the average REIT due to its low exposure to investment grade tenants of around 15% of contract rent. Like fellow highly diversified net lease REIT, WP Carey Inc. (WPC), BNL hedges lower tenant credit risk through high diversification as well as landlord-friendly lease terms, such as above-average rent increases, tenant financial reports and head leases (cross-default clauses involving multiple properties leased to the same tenant).

Based on a 2022 AFFO guidance midpoint per share of $1.40, BNL is currently trading at a price/AFFO multiple of 14.3x at a stock price of approximately $20. That’s a bit less than WPC’s current AFFO multiple of 14.8x, but IMHO WPC more than makes up for that slight premium with greater exposure to investment grade tenants, a slightly larger share of industrial properties in the portfolio, and a much larger share of CPI-related rent increases.

As such, while BNL is a strong holding, I would prefer to allocate investment dollars to WPC at this time.

Broadstone Net Lease Update

While I wouldn’t say BNL has a significant competitive advantage over its peers, such as WPC’s dominant position as a leaseback provider, cost of capital and asset quality of Agree Realty Corporation (ADC ), or the size and scale of Realty Income (O), i would like to point out that BNL has a few positives in its favour.

First, BNL has very few vacancies in its portfolio of over 750 properties. Second, the vast majority (94.2%) of BNL properties benefit from some form of tenant financial reporting, either at the company level only or also at the unit level (i.e. i.e. the store or the property).

Presentation of BNL

Presentation BNL Q1 2022

Third, BNL’s portfolio is highly diversified, far more than the average net rental REIT. Evidenced by the fact that the ten leading tenants of BNL represent only 17.1% of the total rent.

It is both a strength and a weakness. This is a weakness because the market never seems to know how to price diversified REITs, and so these stocks typically trade at a price below their sum-of-the-parts valuation. But diversification is a strength, and likely necessary, for a REIT like BNL that focuses on lower-credit-grade tenants.

Likewise, diversification also offers the benefit of being able to seek attractive acquisition opportunities across a number of industries and property types, depending on which is the most attractive and opportunistic at any given time.

BNL Wallet

Presentation BNL Q1 2022

This factor makes BNL somewhat similar to STORE Capital (STOR) and Essential Properties Realty Trust (EPRT), which also focus on non-IG tenants, but BNL cannot boast like these two that the majority of its properties were acquired through sale-leaseback. using his internal lease form which includes all or nearly all of his preferred lease terms.

Fourth, partly as a result of this focus on non-IG tenants, BNL benefits from above-average contractual rent increases, averaging 2.0% across the entire portfolio.

BNL Q1 results

BNL Q1 2022 presentation

In the first quarter, BNL invested $210 million in 27 properties at a weighted average opening capitalization rate of 5.7%. This average entry cap rate is significantly lower than BNL’s typical vesting cap rate range of 6.3% to 7.2% since 2015. But here’s an additional comment from CEO Chris Czarnecki at the conference telephone call on the results of the first quarter:

The leases include a weighted average lease term of 19.3 years and solid annual rent increases of 1.5%, resulting in a GAAP cap rate of 6.4%.

Duration has value in the net rental world, or at least in recent history characterized by low inflation and low interest rates. The more than 19 years of life remaining on the first quarter acquisitions is a big reason why the initial capitalization rate was so low.

As we’ll see below, restaurants accounted for about half of Q1 acquisitions, while retail accounted for just over 1/3 and industrial 13%.

BNL Acquisitions

Presentation BNL Q1 2022

My first thought was that these newly acquired restaurants should be Quick Service Restaurants (“QSRs”) or fast food restaurants, as QSRs tend to trade at lower cap rates than casual dining restaurants. This would have explained the low weighted average acquisition cap rate of 5.7% for the quarter.

But this is not the case. Instead these restaurants were apparently high end restaurants (of unknown brands). Here is Czarnecki again with a commentary:

During the quarter, we acquired a portfolio of 16 high-end restaurants located in 10 different states, for a total of $100 million. These will include weighted average annual rent increases of 1.1% and a weighted average lease term of 19.5 years. The 16 sites were diversified through four different concepts and a master lease to a national operator with nearly 50 sites in total and over 30 years of experience. The assets are located in attractive retail corridors and display strong operating metrics that translate into strong rent-to-sales ratios and rental coverage.

And then there are the acquired commercial properties, which are mostly located in Canada, representing BNL’s first dip into the Canadian real estate market. Here’s Czarnecki again:

These retail transactions include our first targeted portfolio acquisition in Canada, which includes six high-quality retail locations leading to Canada’s leading outdoor recreation equipment retailer.

Last but not least, the two industrial properties acquired during the quarter. Czarnecki again:

Finally, we acquired two industrial assets and transactions for a total of $27 million during the first quarter. The leases include attractive weighted average annual rent increases of 2.1% and a weighted average lease term of 18.5 years.

The large sum of restaurants acquired during the quarter increased BNL’s total restaurant exposure from 13% at the end of 2021 to 15% at the end of the first quarter.

But industrial, which has become the hottest property type since industrial rents began to soar during the pandemic, remains BNL’s largest segment at 46%. This is the second highest exposure to industrial properties in the net lease REIT space, behind WPC with a 50% allocation (unless you count STAG Industrial (STAG), which exclusively owns industrial properties in single-tenant net rental).

This strong exposure to the industry certainly played a big role in BNL’s impressive rent collection statistics in 2021, posting 100% from the second quarter.

BNL Wallet Statistics

Presentation BNL Q1 2022

Also notice from the image above that almost all of BNL’s leases contain built-in rent increases, 13% of which are also linked to the CPI. This positions BNL slightly better against inflation than the average net rental REIT, although it is not as well positioned as WPC with 58% of its contractual rents linked to the CPI.

What about rising interest rates? At present, debt markets appear increasingly hostile to net borrowing by rental REITs, as bond yields have risen since the start of the year when there is no sign yet. capitalization rates begin to follow them upwards.

Fortunately, BNL has very little debt maturing this year or next year and relatively little maturing before 2026.

BNL balance sheet

Presentation BNL Q1 2022

BNL benefits from an Investment Grade (BBB/Baa2) rated balance sheet and a modest net debt to EBITDA ratio of 5.1x. This is lower than WPC’s net leverage ratio of 5.5x, although WPC leads BNL in its weighted average interest rate: 2.5%, compared to 2.7% for BNL. Admittedly, both are extremely weak.

BNL has $788 million in total liquidity between $54 million in cash and $734 million in availability on its credit facility, which should largely contribute to the financing of acquisitions in the coming quarters.

Finally, the quarterly dividend of $0.27 represents a payout ratio of 77% based on a Q1 AFFO per share of $0.35. The annualized dividend also represents 77% of the AFFO 2022 forecast per share.

Conclusion

When I look through BNL’s portfolio and balance sheet, I can’t find much to complain about. I don’t care about office exposure, but it’s only 8%, and WPC has a much larger allocation for this type of property. And I also don’t particularly care about casual/fine dining restaurants, as these often lack corporate guarantees for their franchise operators, they are less resilient to recession than QSRs and labor shortages implemented have made it difficult for operators to remain complete.

Moreover, I am afraid that BNL is finished-diversified – jack of all trades but master of none. Management is certainly not equally adept in the areas of auto detailing, animal health facilities, call centers, and cold storage. This causes me a degree of uncertainty as to how BNL would fare during a non-pandemic recession.

That said, BNL’s strong pandemic-era rental collection statistics speak for themselves, showing that at least during that type of slowdown, the portfolio held up well.

Even so, due to the focus on industrial and essential retail in current acquisitions, I prefer WPC over BNL at the current price. Although WPC’s payout ratio is slightly higher, so is its dividend yield of 5.43%, compared to BNL’s 5.39%.

Also, WPC has a significantly higher share of CPI-related rent increases than BNL, which I think will prove a very valuable difference between the two over the next few quarters (and possibly years) . WPC’s first-quarter same-store rent growth was 2.7% and is expected to remain above 2% for some time to come.

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BLOOM ENERGY CORP MANAGEMENT REPORT OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-Q) https://lastjeudi.org/bloom-energy-corp-management-report-of-financial-position-and-results-of-operations-form-10-q/ Fri, 06 May 2022 20:10:15 +0000 https://lastjeudi.org/bloom-energy-corp-management-report-of-financial-position-and-results-of-operations-form-10-q/ This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations, estimates, and projections about our industry, management's beliefs, and certain assumptions made by management. For example, forward-looking statements include, but are […]]]>
This Quarterly Report on Form 10-Q contains "forward-looking statements" within
the meaning of the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. These forward-looking statements are based on current
expectations, estimates, and projections about our industry, management's
beliefs, and certain assumptions made by management. For example,
forward-looking statements include, but are not limited to, our expectations
regarding our products, services, business strategies, impact of COVID-19, our
expanded strategic partnership with SK ecoplant, operations, supply chain
(including any direct or indirect effects from the Russia-Ukraine conflict), new
markets, government incentive programs, growth of the hydrogen market and the
sufficiency of our cash and our liquidity. Forward-looking statements can also
be identified by words such as "future," "anticipates," "believes," "estimates,"
"expects," "intends," "plans," "predicts," "targets," "forecasts," "will,"
"would," "could," "can," "may" and similar terms. These statements are based on
the beliefs and assumptions of our management based on information currently
available to management at the time they are made. Such forward-looking
statements are subject to risks, uncertainties and other factors that could
cause actual results and the timing of certain events to differ materially from
future results expressed or implied by such forward-looking statements. Factors
that could cause or contribute to such differences include, but are not limited
to, those identified below, and those discussed in the section titled "Risk
Factors" included in Part II, Item 1A of this Quarterly Report on Form 10-Q and
in our other filings with the Securities and Exchange Commission, including our
Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed on
February 25, 2022. Such forward-looking statements speak only as of the date of
this report. We disclaim any obligation to update any forward-looking statements
to reflect events or circumstances after the date of such statements. You should
review these risk factors for a more complete understanding of the risks
associated with an investment in our securities. The following discussion and
analysis should be read in conjunction with our condensed consolidated financial
statements and notes thereto included elsewhere in this Quarterly Report on Form
10-Q.

Overview

Description of Bloom energy


Our mission is to make clean, reliable energy affordable for everyone in the
world. We created the first large-scale, commercially viable solid oxide
fuel-cell based power generation platform that empowers businesses, essential
services, critical infrastructure and communities to responsibly take charge of
their energy.

Our technology, invented in the United States, is one of the most advanced
electricity and hydrogen producing technologies on the market today. Our
fuel-flexible Bloom Energy Servers can use biogas, hydrogen, natural gas, or a
blend of fuels to create resilient, sustainable and cost-predictable power at
significantly higher efficiencies than traditional, combustion-based resources.
In addition, our same solid oxide platform that powers our fuel cells can be
used to create hydrogen, which is increasingly recognized as a critically
important tool necessary for the full decarbonization of the energy economy. Our
enterprise customers include some of the largest multinational corporations in
the world. We also have strong relationships with some of the largest utility
companies in the United States and the Republic of Korea.

At Bloom Energy, we look forward to a net-zero future. Our technology is
designed to help enable this future in order to deliver reliable, low-carbon,
electricity in a world facing unacceptable levels of power disruptions. Our
resilient platform has kept electricity available for our customers through
hurricanes, earthquakes, typhoons, forest fires, extreme heat and grid failures.
Unlike traditional combustion power generation, our platform is
community-friendly and designed to significantly reduce emissions of criteria
air pollutants. We have made tremendous progress making renewable fuel
production a reality through our biogas, hydrogen and electrolyzer programs, and
we believe that we are well-positioned as a core platform and fixture in the new
energy paradigm to help organizations and communities achieve their net-zero
objectives.

We market and sell our Energy Servers primarily through our direct sales
organization in the United States, and also have direct and indirect sales
channels internationally. Recognizing that deploying our solutions requires a
material financial commitment, we have developed a number of financing options
to support sales of our Energy Servers to customers who lack the financial
capability to purchase our Energy Servers directly, who prefer to finance the
acquisition using third-party financing or who prefer to contract for our
services on a pay-as-you-go model.

Our typical target commercial or industrial customer has historically been
either an investment-grade entity or a customer with investment-grade attributes
such as size, assets and revenue, liquidity, geographically diverse operations
and general financial stability. We have also expanded our product and financing
options to the below-investment-grade customers
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and have also expanded internationally to target customers with deployments on a
wholesale grid. Given that our customers are typically large institutions with
multi-level decision making processes, we generally experience a lengthy sales
process.

Strategic Investment

On October 23, 2021, we entered into the SPA with SK ecoplant in connection with
a strategic partnership. Pursuant to the SPA, on December 29, 2021, we sold to
SK ecoplant 10 million shares of zero coupon, non-voting redeemable convertible
Series A preferred stock in us, par value $0.0001 per share ("RCPS"), at a
purchase price of $25.50 per share for an aggregate purchase price of $255
million (the "Initial Investment").

Simultaneous with the execution of the SPA, we and SK ecoplant executed an
amendment to the Joint Venture Agreement ("JVA"), an amendment and restatement
to our Preferred Distribution Agreement ("PDA Restatement") and a new Commercial
Cooperation Agreement regarding initiatives pertaining to the hydrogen market
and general market expansion for the Bloom Energy Server and Bloom Energy
Electrolyzer. For additional details about the transaction with SK ecoplant,
please see Note 18 - SK ecoplant Strategic Investment, and for more information
about our joint venture with SK ecoplant, please see Note 12 - Related Party
Transactions in Part I, Item 1, Financial Statements.

Covid-19 pandemic

General


We continue to monitor and adjust as appropriate our operations in response to
the COVID-19 pandemic, including the Omicron and Delta variants. We maintain
protocols to minimize the risk of COVID-19 transmission within our facilities,
including enhanced cleaning and masking if required by the local authorities, as
well as providing testing for all employees. We will continue to follow CDC and
local guidelines when notified of possible exposures. For more information
regarding the risks posed to our company by the COVID-19 pandemic, refer to Part
I, Item 1A, Risk Factors - Risks Related to Our Products and Manufacturing - Our
business has been and continues to be adversely affected by the COVID-19
pandemic.

Cash and capital resources


COVID-19 created disruptions throughout various aspects of our business as noted
herein. While we improved our liquidity in 2021, we increased our working
capital spend in the first quarter of 2022. We have entered into new leases to
maintain sufficient manufacturing facilities to meet anticipated demand in 2022,
including new product line expansion. In addition, we also increased our working
capital spend and resources to enhance our marketing efforts and to expand into
new geographies both domestically and internationally.

We believe we have the sufficient capital to run our business over the next 12
months, including the completion of the build out of our manufacturing
facilities. Our working capital was strengthened with the Initial Investment by
SK ecoplant as described above. In addition, we may still enter the equity or
debt market as need to support the expansion of our business. Please refer to
Note 7 - Outstanding Loans and Security Agreements in Part I, Item 1, Financial
Statements; and Part II, Item 1A, Risk Factors - Risks Related to Our Liquidity
- Our substantial indebtedness, and restrictions imposed by the agreements
governing our and our PPA Entities' outstanding indebtedness, may limit our
financial and operating activities and may adversely affect our ability to incur
additional debt to fund future needs, and We may not be able to generate
sufficient cash to meet our debt service obligations, for more information
regarding the terms of and risks associated with our debt.

Sales

We have not experienced a material impact on our sales activity related to COVID-19 in the three months ended March 31, 2022.

Customer financing


The ongoing COVID-19 pandemic resulted in a significant drop in the ability of
many financiers (particularly financing institutions) to monetize tax credits,
primarily the result of a potential drop in taxable income stemming from the
pandemic. However, during the second half of 2021 and the first three months of
2022, we have seen this constraint improving. Our ability to obtain financing
for our Energy Servers partly depends on the creditworthiness of our customers,
and a few of our customers' credit ratings have fallen during the pandemic,
which can impact the financing for their use of an Energy Server. We continue to
work on obtaining the financing required for our 2022 installations but if we
are unable to secure such financing our revenue, cash flow and liquidity will be
materially impacted.

Installation and maintenance of energy servers

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Our installation and maintenance operations were impacted by the COVID-19
pandemic and supply chain shortages in general during the first three months of
2022. Our installation projects have experienced some delays relating to, among
other things, shortages in available parts and labor for design, installation
and other work; and the inability or delay in our ability to access customer
facilities due to shutdowns or other restrictions. Despite the impact on
installations during the three months ended March 31, 2022 and given our
mitigation strategies, we only had one instance in the first quarter of 2022 of
a significant delay in the installation of our Energy Servers as a result of
supply chain issues that pushed an installation out a quarter.

As to maintenance, if we are delayed in or unable to perform scheduled or
unscheduled maintenance, our previously-installed Energy Servers will likely
experience adverse performance impacts including reduced output and/or
efficiency, which could result in warranty and/or guaranty claims by our
customers. Further, due to the nature of our Energy Servers, if we are unable to
replace worn parts in accordance with our standard maintenance schedule, we may
be subject to increased costs in the future. During the three months ended March
31, 2022, we experienced no delays in servicing our Energy Servers due to
COVID-19.

Supply chain


During the three months ended March 31, 2022, we continued to experience supply
chain disruptions due to direct and indirect COVID-19 impacts although we were
able to mitigate the impact so that we did not experience delays in the
manufacture of our Energy Servers. We have a global supply chain and obtain
components from Asia, Europe and India. In many cases, the components we obtain
are jointly developed with our suppliers and unique to us, which makes it
difficult to obtain and qualify alternative suppliers should our suppliers be
impacted by the COVID-19 pandemic or related effects. The Russia-Ukraine war
impact so far has been limited to increased freight cost due to the rise in oil
and related fuel prices. If the direct or indirect effects from this conflict
spread, this could impact our supply base ability to provide the materials we
need to meet our planned build and shipment plans. Although we were able to find
alternatives for many component shortages, we experienced cost increases with
respect to container shortages, ground transport, ocean shipping and air
freight. We have put actions in place to mitigate the disruptions by booking
alternate sea routes, limiting our use of air shipments, creating virtual hubs
and consolidating shipments coming from the same region. During the three months
ended March 31, 2022, we continued to manage disruptions from an increase in
lead times for most of our components due to a variety of factors, including
supply shortages, shipping delays and labor shortages, and we expect this to
continue through 2022. We are experiencing raw material pricing pressures and
component shortages especially for semiconductors and specialty metals that we
expect to persist through the remainder of the calendar year. In addition, the
impact of inflation on the price of components, raw materials and labor have
increased. In the event we are unable to mitigate the impact of delays and/or
price increases in raw materials, electronic components and freight, it could
delay the manufacturing and installation of our Energy Servers and increase the
cost of our Energy Server, which would adversely impact our cash flows and
results of operations, including revenue and gross margin.

If spikes in COVID-19 occur in regions in which our supply chain operates we
could experience a delay in components and incur further freight price
increases, which could in turn impact production and installations and our cash
flow and results of operations, including revenue and gross margin.

Manufacturing


Although we have experienced labor shortages due to COVID-19 absences and the
relative shortage of labor, overall this has not impacted our production given
the safety protocols we have put in place augmented by our ability to increase
our shifts and obtain a contingent work force for some of the manufacturing
activities. We have incurred additional labor expense due to enhanced safety
protocols designed to minimize exposure and risk of COVID-19 transmission as
well as increased wages in general. If COVID-19 materially impacts our supply
chain or if we experience a significant COVID-19 outbreak that affects our
manufacturing workforce, our production could be adversely impacted which could
adversely impact our cash flow and results of operation, including revenue.

Purchase and financing options

Insight

In order to please the widest variety of customers, we make several options available to our customers. Both in United States and abroad, we sell energy servers directly to customers. In United Stateswe also allow customers to use energy servers through a pay-as-you-go offering, made possible through third-party ownership financing agreements.


Often our offerings take advantage of local incentives. In the United States,
our financing arrangements are structured to optimize both federal and local
incentives, including the ITC and accelerated depreciation. Internationally, our
sales are made primarily to distributors who on-sell to, and install for,
customers; these deals are also structured to use local incentives
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applicable to our energy servers. Increasingly, we use trusted installers and other sourcing collaborations in United States to generate transactions.


Whichever option is selected by a customer in the Unites States or
internationally, the contract structure will include obligations on our part to
operate and maintain the Energy Server ("O&M Obligations"). The O&M Obligations
may either be (i) for a one-year period, subject to annual renewal at the
customer's option, which historically are almost always renewed year over year,
or (ii) for a fixed term. In the United States, the contract structure often
includes obligations on our part to install the Energy Servers ("Installation
Obligations"). Consequently, our transactions may generate revenue from the sale
of Energy Servers and electricity, performance of O&M Obligations, and
performance of Installation Obligations.

In addition to customary workmanship and materials warranties, as part of the
O&M Obligations we provide warranties and guaranties regarding the efficiency
and output of our Energy Servers to the customer and, in certain financing
structures, to the financing parties too. We refer to a "performance warranty"
as an obligation to repair or replace the Energy Servers as necessary to return
performance of an Energy Server to the warranted performance level. We refer to
a "performance guaranty" as an obligation to make a payment to compensate for
the failure of the Energy Server to meet the guaranteed performance level. Our
obligation to make payments under the performance guaranty is always
contractually capped.

Energy server sales


There are customers who purchase our Energy Servers directly from us pursuant to
customary equipment sales contracts. In connection with the purchase of Energy
Servers, the customers also enter into a contract with us for the O&M
Obligations. The customer may elect to engage us to provide the Installation
Obligations or engage a third-party provider. Internationally, sales often occur
through distribution arrangements pursuant to which local construction services
providers perform the Installation Obligations, as is the case in the Republic
of Korea where we contract directly with the customer to provide O&M
Obligations.

A customer may enter into a contract for the sale of our Energy Servers and
finance that acquisition through a sale-leaseback with a financial institution.
In most cases, the financial institution completes its purchase from us
immediately after commissioning. We both (i) facilitate this financing
arrangement between the financial institution and the customer and (ii) provide
ongoing operations and maintenance services for the Energy Servers (such
arrangement, a "Traditional Lease").

Customer financing options

With regard to third-party financing options in United Statesa customer can choose a contract for the use of the energy servers in exchange for a lump sum payment based on capacity (a “managed services contract”) or a contract for the purchase of the electricity produced by the servers of energy in exchange for a programmed dollar amount per kilowatt-hour (a “power purchase agreement” or “PPA”).


Certain customer payments in a Managed Services Agreement are required
regardless of the level of performance of the Energy Server; in some cases it
may also include a variable payment based on the Energy Server's performance or
a performance-related set-off. Managed Services Agreements are then financed
pursuant to a sale-leaseback with a financial institution (a "Managed Services
Financing").

PPAs are generally funded on a portfolio basis. We have funded portfolios through tax equity partnerships, acquisition financings and direct sales to investors (each, a “Portfolio Financing”).


In the United States, our capacity to offer our Energy Servers through either of
these financed arrangements depends in large part on the ability of financing
parties to optimize the tax benefits associated with a fuel cell, such as the
ITC or accelerated depreciation. Interest rate fluctuations, and
internationally, currency exchanges fluctuations, may also impact the
attractiveness of any financing offerings for our customers. Our ability to
finance a Managed Services Agreement or a PPA is also related to, and may be
limited by, the creditworthiness of the customer. Additionally, the Managed
Services Financing option is limited by a customer's willingness to commit to
making payments to a financing party regardless of the level of performance of
the Energy Server.

In each of our financing options, we typically perform the functions of a
project developer, including identifying end customers and financiers, leading
the negotiations of the customer agreements and financing agreements, securing
all necessary permitting and interconnections approvals, and overseeing the
design and construction of the project up to and including commissioning the
Energy Servers. Increasingly, however, we are making sales to third-party
developers.

Each of our financing transaction structures is described in more detail below.

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Funding for managed services

                     [[Image Removed: be-20220331_g2.jpg]]

*Compensation received from customers is recorded as electricity revenue or service
revenue, according to ASC 840 and ASC 842, as applicable. For additional
information, see Note 2 - Summary of Significant Accounting Policies in Part 1,
Item 1, Financial Statements.


Under our Managed Services Financing option, we enter into a Managed Services
Agreement with a customer for a certain term. The fixed capacity-based payments
made by the customer under the Managed Services Agreement are applied toward our
obligation to pay down our periodic rent liability under a sale-leaseback
transaction with a financier. We assign all our rights to such fixed payments
made by the customer to the financier, as lessor.

Once we enter into a Managed Services Agreement with the customer, and a
financier is identified, we sell the Energy Server to the financier, as lessor,
who then leases it back to us, as lessee, pursuant to a sale-leaseback
transaction. Certain of our sale-leaseback transactions failed to achieve all of
the criteria for sale accounting. For such failed sale-and-leaseback
transactions, the proceeds from the transaction are recognized as a financing
obligation within our condensed consolidated balance sheet. For successful
sale-and-leaseback transactions, the financier of a Managed Services Agreement
typically pays the purchase price for an Energy Server at or around acceptance,
and we recognize the fair value of the Energy Servers sold within product and
install revenue and recognize a right-of-use ("ROU") asset and a lease liability
on our condensed consolidated balance sheet. Any proceeds in excess of the fair
value of the Energy Servers are recognized as a financing obligation.

The terms of our current managed service contract offerings range from five to ten years.


Our Managed Services Agreements typically provide for performance warranties of
both the efficiency and output of the Energy Server and may include other
warranties depending on the type of deployment. We often structure payments from
the customer as a dollars per kilowatt-hour payment and our pricing assumes
revenue at the 95% output level. This means that our
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revenue may be lower than expected if output is less than 95% and higher if
output exceeds 95%. As of March 31, 2022, we had incurred no liabilities due to
failure to repair or replace our Energy Servers pursuant to these performance
warranties and the fleet of our Energy Servers deployed pursuant to the Managed
Services Financings was performing at a lifetime average output of approximately
84%.

Portfolio Financings

In the past, we financed the Energy Servers subject to our PPAs through two
types of Portfolio Financings. In one type of transaction, we sold a portfolio
of PPAs to a tax equity partnership in which we held a managing member interest
(such partnership in which we hold an interest, a "PPA Entity"). In these
transactions, we sold the portfolio of Energy Servers to a limited liability
project company of which the PPA Entity was the sole member (such portfolio
owner, a "Portfolio Company"). Whether an investor, a tax equity partnership, or
a single member limited liability company, the Portfolio Company is the entity
that directly owns the portfolio. The Portfolio Company sells the electricity
generated by the Energy Servers contemplated by the PPAs to the customers. We
recognize revenue as the electricity is produced. Our current practices no
longer contemplate these types of transactions.

We also finance PPAs through a second type of Portfolio Financing pursuant to
which we (i) directly sell a portfolio of PPAs and the Energy Servers or (ii)
sell a Portfolio Company, in each case to an investor or tax equity partnership
in which we do not have an equity interest (a "Third-Party PPA"). Like the other
Portfolio Financing structure, the investor or tax equity partnership owns the
Portfolio Company or the Energy Servers directly, and in each case, sells the
electricity generated by the Energy Servers contemplated by the PPAs to the
customers. For further discussion, see Note 11 - Portfolio Financings in Part I,
Item 1, Financial Statements.

                     [[Image Removed: be-20220331_g3.jpg]]



When we finance a portfolio of Energy Servers and PPAs through a Portfolio
Financing, we typically enter into a sale, engineering and procurement and
construction agreement ("EPC Agreement") and an O&M Agreement, with the
Portfolio Company. As owner of the portfolio of PPAs and related Energy Servers,
the Portfolio Company receives all customer payments generated under the PPAs,
the benefits of the ITC and accelerated tax depreciation, and any other
available state or local benefits arising out of the ownership or operation of
the Energy Servers, to the extent not already allocated to the customer under
the PPA.
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The sales of our Energy Servers in connection with a Portfolio Financing have
many of the same terms and conditions as a direct sale. Payment of the purchase
price is generally broken down into multiple installments, which may include
payments prior to shipment, upon shipment or delivery of the Energy Server, and
upon acceptance of the Energy Server.

Under an O&M Agreement, a one-year service package is provided with the initial
sale that includes performance warranties and performance guaranties. After the
expiration of the initial standard one-year package, the Portfolio Company has
the option to extend our services under the O&M Agreement on an annual basis at
a price determined at the time of purchase of our Energy Server. After the
standard one-year service package, the Portfolio Company has almost always
exercised the option to renew our services under the O&M Agreement.

As of March 31, 2022, we had incurred no liabilities to investors in Portfolio
Financings due to failure to repair or replace Energy Servers pursuant to these
performance warranties. Our obligation to make payments for underperformance
against the performance guaranties was capped at an aggregate total of
approximately $114.6 million (including payments both for low output and for low
efficiency) and our aggregate remaining potential liability under this cap was
approximately $97.2 million.

Obligations to portfolio companies


Our Portfolio Financings involve many obligations on our part to the Portfolio
Company. These obligations are set forth in the applicable EPC Agreement and O&M
Agreement, and may include some or all of the following obligations:

• design, manufacture and install the energy servers, and sell these energy servers to the Holding company;

•obtain all necessary permits and other government approvals required to install and operate the energy servers, and maintain such permits and approvals for the duration of the EPC agreements and O&M agreements;

•operating and maintaining the Energy Servers in accordance with all applicable laws, permits and regulations;

•meet performance warranties and warranties set forth in applicable operating and maintenance agreements; and

•comply with any other specific requirements contained in PPAs with customers.


In some cases, the EPC Agreement obligates us to repurchase the Energy Server in
the event of certain IP Infringement claims. In others, a repurchase of the
Energy Server is only one optional remedy we have to cure an IP Infringement
claim. The O&M Agreement grants a Portfolio Company the right to obligate us to
repurchase the Energy Servers in the event the Energy Servers fail to comply
with the performance warranties and guaranties in the O&M Agreement and we do
not cure such failure in the applicable time period, or that a PPA terminates as
a result of any failure by us to perform the obligations in the O&M Agreement.
In some of our Portfolio Financings, our obligation to repurchase Energy Servers
under the O&M extends to the entire fleet of Energy Servers sold in the event a
systemic failure that affects more than a specified number of Energy Servers.

In some Portfolio Financings, we have also agreed to pay liquidated damages to
the applicable Portfolio Company in the event of delays in the manufacture and
installation of our Energy Servers, either in the form of a cash payment or a
reduction in the purchase price for the applicable Energy Servers.

Administration of portfolio companies


In each of our Portfolio Financings in which we hold an equity interest in the
PPA Entity, we perform certain administrative services as managing member,
including invoicing the end customers for amounts owed under the PPAs,
administering the cash receipts of the Portfolio Company in accordance with the
requirements of the financing arrangements, interfacing with applicable
regulatory agencies, and other similar obligations. We are compensated for these
services on a fixed dollar-per-kilowatt basis.

For those Portfolio Financings with project debt, the Portfolio Company owned by
each of our PPA Entities (with the exception of one PPA Entity) incurred debt in
order to finance the acquisition of the Energy Servers. The lenders for these
transactions are a combination of banks and/or institutional investors. In each
case, the debt is secured by all of the assets of the applicable Portfolio
Company, such assets being primarily comprised of the Energy Servers and a
collateral assignment of each of the contracts to which the Portfolio Company is
a party, including the O&M Agreement and the PPAs. As further collateral, the
lenders receive a security interest in 100% of the membership interest of the
Portfolio Company. The lenders have no
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reliance on us or one of the other equity investors (the “Equity investors“) in the Holding company for liabilities arising from the portfolio.


We have determined that we are the primary beneficiary in the PPA Entities,
subject to reassessments performed as a result of upgrade transactions.
Accordingly, we consolidate 100% of the assets, liabilities and operating
results of these PPA Entities, including the Energy Servers and lease income, in
our condensed consolidated financial statements. We recognize the Equity
Investors' share of the net assets of the investment entities as noncontrolling
interests in subsidiaries in our condensed consolidated balance sheet. We
recognize the amounts that are contractually payable to these investors in each
period as distributions to noncontrolling interests in our condensed
consolidated statements of redeemable convertible preferred stock, redeemable
noncontrolling interest, stockholders' (deficit) equity and noncontrolling
interest.

Our condensed consolidated statements of cash flows reflect cash received from
the Equity Investors as proceeds from investments by noncontrolling interests in
subsidiaries. Our condensed consolidated statements of cash flows also reflect
cash paid to these investors as distributions paid to noncontrolling interests
in subsidiaries. We reflect any unpaid distributions to these Equity Investors
as distributions payable to noncontrolling interests in subsidiaries on our
condensed consolidated balance sheets. However, the PPA Entities are separate
and distinct legal entities, and Bloom Energy Corporation may not receive cash
or other distributions from the PPA Entities except in certain limited
circumstances and upon the satisfaction of certain conditions, such as
compliance with applicable debt service coverage ratios and the achievement of a
targeted internal rates of return to the Equity Investors, or otherwise.

For more information on our portfolio financings, see Note 11 – Portfolio financings in Part I, Item 1, Financial statements.

Delivery and installation


The transfer of control of our product to our customer based on the delivery and
installations of our products has a significant impact on the timing of the
recognition of product and installation revenue. Many factors can cause a lag
between the time that a customer signs a contract and our recognition of product
revenue. These factors include the number of Energy Servers installed per site,
local permitting and utility requirements, environmental, health and safety
requirements, weather, customer facility construction schedules, customers'
operational considerations and the timing of financing. Many of these factors
are unpredictable and their resolution is often outside of our or our customers'
control. Customers may also ask us to delay an installation for reasons
unrelated to the foregoing, such as, for sales contracts, delays in their
obtaining financing. Further, due to unexpected delays, deployments may require
unanticipated expenses to expedite delivery of materials or labor to ensure the
installation meets the timing objectives. These unexpected delays and expenses
can be exacerbated in periods in which we deliver and install a larger number of
smaller projects. In addition, if even relatively short delays occur, there may
be a significant shortfall between the revenue we expect to generate in a
particular period and the revenue that we are able to recognize.

International distribution partners


India. In India, sales activities are currently conducted by Bloom Energy
(India) Pvt. Ltd., our wholly-owned subsidiary; however, we continue to evaluate
the Indian market to determine whether the use of channel partners would be a
beneficial go-to-market strategy to grow our India market sales.

Japan. In Japan, sales were previously conducted pursuant to a Japanese joint
venture established between us and subsidiaries of SoftBank Corp., called Bloom
Energy Japan Limited ("Bloom Energy Japan"). Under this arrangement, we sold
Energy Servers to Bloom Energy Japan and we recognized revenue once the Energy
Servers left the port in the United States. Bloom Energy Japan then entered into
the contract with the end customer and performed all installation work as well
as some of the operations and maintenance work. As of July 1, 2021, we acquired
Softbank Corp.'s interest in Bloom Energy Japan for a cash payment and are now
the sole owner of Bloom Energy Japan.

The Republic of Korea. In 2018, Bloom Energy Japan consummated a sale of Energy
Servers in the Republic of Korea to Korea South-East Power Company. Following
this sale, we entered into a Preferred Distributor Agreement in November 2018
with SK ecoplant for the marketing and sale of Bloom Energy Servers for the
stationary utility and commercial and industrial South Korean power market.

As part of our expanded strategic partnership with SK ecoplant, the parties executed the PDA Restatement in October 2021, which incorporates the previously amended terms and establishes: (i) SK ecoplant’s purchase commitments for the next three years (on a buy or pay basis) for Bloom Energy Servers; (ii) shift procedures; (iii) higher pricing for the product and

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services; (iv) termination procedures for material breaches; and (v) procedures
if there are material changes to the Republic of Korea Hydrogen Portfolio
Standard. For additional details about the transaction with SK ecoplant, please
see Note 18 - SK ecoplant Strategic Investment in Part I, Item 1, Financial
Statements.

Under the terms of the PDA Restatement, we (or our subsidiary) contract directly
with the customer to provide operations and maintenance services for the Energy
Servers. We have established a subsidiary in the Republic of Korea, Bloom Energy
Korea, LLC, to which we subcontract such operations and maintenance services.
The terms of the operations and maintenance are negotiated on a case-by-case
basis with each customer, but are generally expected to provide the customer
with the option to receive services for at least 10 years, and for up to the
life of the Energy Servers.

SK ecoplant Joint Venture Agreement. In September 2019, we entered into a joint
venture agreement with SK ecoplant to establish a light-assembly facility in the
Republic of Korea for sales of certain portions of our Energy Server for the
stationary utility and commercial and industrial market in the Republic of
Korea. The joint venture is majority controlled and managed by us, with the
facility, which became operational in July 2020. Other than a nominal initial
capital contribution by Bloom Energy, the joint venture will be funded by SK
ecoplant. SK ecoplant, who currently acts as a distributor for our Energy
Servers for the stationary utility and commercial and industrial market in the
Republic of Korea, is our primary customer for the products assembled by the
joint venture. In October 2021, as part of our expanded strategic partnership
with SK ecoplant, the parties agreed to amend the JVA, which increases the scope
of the assembly work done in the joint venture facility.

Distributed Generation Community Programs


In July 2015, the state of New York introduced its Community Distributed
Generation ("CDG") program, which extends New York's net metering program in
order to allow utility customers to receive net metering credits for electricity
generated by distributed generation assets located on the utility's grid but not
physically connected to the customer's facility. This program allows for the use
of multiple generation technologies, including fuel cells. Since then other
states have instituted similar programs and we expect that other states may do
so as well in the future. In June 2020, the New York Public Service Commission
issued an Order that limited the CDG compensation structure for "high capacity
factor resources," including fuel cells, in a way that will make the economics
for these types of projects more challenging in the future. However, projects
already under contract were grandfathered into the program under the previous
compensation structure.

We have entered into sales, installation, operations and maintenance agreements
with three developers for the deployment of our Energy Servers pursuant to the
New York CDG program for a total of 441 systems. As of March 31, 2022, we have
recognized revenue associated with 271 systems. We continue to believe that
these types of subscriber-based programs could be a source of future revenue and
will continue to look to generate sales through these programs in the future.


                                       49
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Key Operating Metrics – Three Months Ended Comparison March 31, 2022 and 2021


For a description of the key operating metrics we use to evaluate business
activity, to measure performance, to develop financial forecasts and to make
strategic decisions, see Part II, Item 7 of our Annual Report on Form 10-K for
the year ended December 31, 2021 under the subheading "Key Operation Metrics".

Purchase options


100% of acceptances in three months ended March 31, 2022 were attributable to
the direct pay option. The portion of revenue in the three months ended March
31, 2022 attributable to each payment option was as follows: direct purchase
87%, traditional lease 1%, managed services 7% and Bloom Electrons 5%. The
portion of acceptances in the three months ended March 31, 2021 attributable to
each payment option was as follows: direct purchase 98% and managed services 2%.
The portion of revenue in the three months ended March 31, 2021 attributable to
each payment option was as follows: direct purchase 87%, traditional lease 1%,
managed services 6% and Bloom Electrons 6%.

Product Acceptances

                                                    Three Months Ended               Change
                                                        March 31,
                                                  2022              2021       Amount         %

        Product accepted during the period
        (in 100 kilowatt systems)                375               359             16       4.5  %

Product accepted increased approximately 16 systems, or 4.5%, for the three months ended March 31, 2022 compared to the three months ended March 31, 2021. Acceptance volume increased as demand grew for the Bloom energy waiters.


Megawatts accepted, net, increased approximately 179 megawatts, or 29.6%, for
the three months ended March 31, 2022 compared to the three months ended March
31, 2021. Acceptances achieved from March 31, 2021 to March 31, 2022 were added
to our installed base and therefore, increased our megawatts accepted, net, from
604 megawatts to 783 megawatts.

Costs related to our products


Total product related costs for the three Months Ended March 31, 2022 and 2021
was as follows:

                                                                         Three Months Ended                             Change
                                                                             March 31,
                                                                      2022                 2021                Amount                %

Product costs of product accepted in the period                        $2,561/kW           $2,284/kW               $277/kW          12.1  %

Period Costs of Manufacturing Expenses Not Included in Product Costs (000s)

                        $    9,687             $    5,428              $4,259               78.5  %
Installation costs on product accepted in the period                     $341/kW             $129/kW               $212/kW         164.3  %


Product costs of product accepted increased approximately $277 per kilowatt, or
12.1%, for the three months ended March 31, 2022 compared to the three months
ended March 31, 2021. This increase in cost is primarily driven by some of the
cost pressures seen in the external environment with commodity pricing and
logistics increasing significantly from one year ago. Our ongoing cost reduction
efforts to reduce material costs, labor and overhead through improved automation
of our manufacturing facilities, our better facility utilization and our ongoing
material cost reduction programs with our vendors continued but were more than
offset by the temporary increases that we experienced.

Period costs of manufacturing related expenses increased approximately $4.3
million, or 78.5%, for the three months ended March 31, 2022 compared to the
three months ended March 31, 2021. Our period costs of manufacturing related
expenses increased primarily as a result of costs incurred to support capacity
expansion efforts which will be brought online in future periods.
                                       50
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Installation costs on product accepted increased approximately $212 per
kilowatt, or 164.3%, for the three months ended March 31, 2022 as compared to
the three months ended March 31, 2021. This increase in cost is primarily driven
by an increase in the mix of sites requiring Bloom installation. Each customer
site is different and installation costs can vary due to a number of factors,
including site complexity, size, location of gas, etc. As such, installation on
a per kilowatt basis can vary significantly from period-to-period. In addition,
some customers do their own installation for which we have little to no
installation cost.

Operating results


A discussion regarding the comparison of our financial condition and results of
operations for the three months ended March 31, 2022 and 2021 is presented
below.

Revenue

                       Three Months Ended
                           March 31,                     Change
                      2022           2021          Amount          %
                                  (dollars in thousands)
Product            $ 133,547      $ 137,930      $ (4,383)       (3.2) %
Installation          13,553          2,659        10,894       409.7  %
Service               35,239         36,417        (1,178)       (3.2) %
Electricity           18,700         17,001         1,699        10.0  %
Total revenue      $ 201,039      $ 194,007      $  7,032         3.6  %


Total Revenue

Total revenue increased by $7.0 million, or 3.6%, for the three months ended
March 31, 2022 as compared to the prior year period. This increase was primarily
driven by a $10.9 million increase in installation revenue and a $1.7 million
increase in electricity revenue partially offset by a $4.4 million decrease in
product revenue and a $1.2 million decrease in service revenue.

Product revenue


Product revenue decreased by $4.4 million, or 3.2%, for the three months ended
March 31, 2022 as compared to the prior year period. The product revenue
decrease was driven primarily by price reductions to expand our addressable
market, partially offset by a 4.5% increase in product acceptances resulting
from expansion in existing markets.

Installation revenue


Installation revenue increased by $10.9 million, or 409.7%, for the three months
ended March 31, 2022 as compared to the prior year period. This increase in
installation revenue was driven by an increase in the mix of product acceptances
requiring installations by Bloom.

Service revenue


Service revenue decreased by $1.2 million, or 3.2%, for the three months ended
March 31, 2022 as compared to the prior year period. This decrease was primarily
due to delays in execution of long-term service agreements and the impact of
product performance guarantees, partially offset by an increase in new
acceptances and renewal of existing service contracts. We expect our service
revenue growth as we continue to expand our install base.

Electricity revenue


Electricity revenue increased by $1.7 million, or 10.0%, for the three months
ended March 31, 2022 as compared to the prior year period due to the increase in
installed units as a result of the increase in Managed Services transactions
recorded in the second half of fiscal year 2021.
                                       51
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Cost of Revenue

                               Three Months Ended
                                   March 31,                     Change
                              2022           2021         Amount           %
                                          (dollars in thousands)
Product                    $ 105,742      $  87,294      $ 18,448        21.1  %
Installation                  12,773          4,625         8,148       176.2  %
Service                       41,826         36,118         5,708        15.8  %
Electricity                   12,761         11,319         1,442        12.7  %
Total cost of revenue      $ 173,102      $ 139,356      $ 33,746        24.2  %


Total Cost of Revenue

Total cost of revenue increased by $33.7 million, or 24.2%, for the three months
ended March 31, 2022 as compared to the prior year period primarily driven by a
$18.4 million increase in cost of product revenue, $8.1 million increase in
costs of installation revenue, $5.7 million increase in cost of service revenue,
increased freight charges and other supply chain-related pricing pressures and
costs incurred to support capacity expansion efforts which will be brought
online in future periods. This increase was partially offset by our ongoing cost
reduction efforts to reduce material costs in conjunction with our suppliers and
our reduction in labor and overhead costs through increased volume, improved
processes and automation at our manufacturing facilities.

Product revenue cost


Cost of product revenue increased by $18.4 million, or 21.1%, for the three
months ended March 31, 2022 as compared to the prior year period. The cost of
product revenue increase was driven primarily by a 4.5% increase in product
acceptances, increased freight charges and other supply chain-related pricing
pressures and costs incurred in support of upcoming capacity expansion efforts
which will be brought online in future periods. This increase was partially
offset by our ongoing cost reduction efforts to reduce material costs in
conjunction with our suppliers and our reduction in labor and overhead costs
through increased volume, improved processes and automation at our manufacturing
facilities.

Cost of Installation Revenue

Cost of installation revenue increased by $8.1 million, or 176.2%, for the three
months ended March 31, 2022 as compared to the prior year period. This increase
was driven by an increase in the mix of product acceptances requiring Bloom
installations.

Service revenue cost


Cost of service revenue increased by $5.7 million, or 15.8%, for the three
months ended March 31, 2022 as compared to the prior year period. This increase
was primarily due to the 4.5% increase in acceptances plus the maintenance
contract renewals associated with the increase in our fleet of Energy Servers,
partially offset by the significant improvements in power module life, cost
reductions and our actions to proactively manage fleet optimizations.

Electricity revenue cost


Cost of electricity revenue increased by $1.4 million, or 12.7%, for the three
months ended March 31, 2022 as compared to the prior year period, primarily due
to the increase in installed units as a result of the increase in Managed
Services recorded in the second half of fiscal year 2021.
                                       52
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Gross profit and gross margin

                                             Three Months Ended
                                                 March 31,
                                             2022                2021         Change
                                                  (dollars in thousands)
            Gross profit:
            Product                 $               27,805    $   50,636    $ (22,831)
            Installation                               780       (1,966)        2,746
            Service                                (6,587)           299       (6,886)
            Electricity                              5,939         5,682          257
            Total gross profit      $               27,937    $   54,651    $ (26,714)

            Gross margin:
            Product                                  21  %        37   %
            Installation                              6  %       (74)  %
            Service                                 (19) %         1   %
            Electricity                              32  %        33   %
            Total gross margin                       14  %        28   %

Total gross profit


Gross profit decreased by $26.7 million in the three months ended March 31, 2022
as compared to the prior year period primarily driven by the $22.8 million
decrease in product gross profit resulting from price reductions to expand our
addressable market, increased freight charges and other supply chain-related
pricing pressures and costs incurred to support capacity expansion efforts which
will be brought online in future periods. This decrease was partially offset by
the 4.5% increase in acceptances and our ongoing cost reduction efforts to
reduce material costs in conjunction with our suppliers and our reduction in
labor and overhead costs through increased volume, improved processes and
automation at our manufacturing facilities.

Gross profit of product


Product gross profit decreased by $22.8 million in the three months ended March
31, 2022 as compared to the prior year period. The decrease is primarily driven
by price reductions to expand our addressable market, increased freight charges
and other supply chain-related pricing pressures and costs incurred to support
capacity expansion efforts which will be brought online in future periods. This
decrease was partially offset by a 4.5% increase in product acceptances and our
ongoing cost reduction efforts to reduce material costs in conjunction with our
suppliers and our reduction in labor and overhead costs through increased
volume, improved processes and automation at our manufacturing facilities.

Gross installation profit (loss)


Installation gross profit improved by $2.7 million in the three months ended
March 31, 2022 as compared to the prior year period driven by the site mix, as
more of the acceptances required installation in the current time period, and
other site related factors such as site complexity, size, local ordinance
requirements and location of the utility interconnect.

Gross service profit (loss)


Service gross loss worsened by $6.9 million in the three months ended March 31,
2022 as compared to the prior year period. This was primarily due to unfavorable
timing of long-term service agreement and impact of product performance
guarantees offset by improvements in power module life, cost reductions and our
actions to proactively manage fleet optimizations.

Gross electricity profit


Electricity gross profit increased by $0.3 million in the three months ended
March 31, 2022 as compared to the prior year period mainly due to the increase
in Managed Services transactions recorded in the second half of fiscal year
2021.
                                       53
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Operating Expenses

                                    Three Months Ended
                                        March 31,                     Change
                                    2022           2021        Amount           %
                                               (dollars in thousands)
Research and development        $   34,526      $ 23,295      $ 11,231        48.2  %
Sales and marketing                 21,334        19,952         1,382         6.9  %
General and administrative          37,736        25,801        11,935        46.3  %
Total operating expenses        $   93,596      $ 69,048      $ 24,548        35.6  %


Total Operating Expenses

Total operating expenses increased by $24.5 million in the three months ended
March 31, 2022 as compared to the prior year period. This increase was primarily
attributable to our investment in business development and front-end sales both
in the United States and internationally, investment in brand and product
management, and our continued investment in our R&D capabilities to support our
technology roadmap.

Research and Development

Research and development expenses increased by $11.2 million in the three months
ended March 31, 2022 as compared to the prior year period. This increase was
primarily driven by increases in employee compensation and benefits to expand
our employee base in order to support our technology roadmap, including our
hydrogen, electrolyzer, carbon capture, marine and biogas solutions.

Sales and Marketing


Sales and marketing expenses increased by $1.4 million in the three months ended
March 31, 2022 as compared to the prior year period. This increase was primarily
driven by increases in employee compensation and benefits to expand our U.S. and
international sales force, as well as increased investment in brand and product
management, partially offset by a decrease in outside services.

General and administrative


General and administrative expenses increased by $11.9 million in the three
months ended March 31, 2022 as compared to the prior year period. This increase
was primarily driven by increases in employee compensation and benefits and
outside services.

Stock-Based Compensation

                                        Three Months Ended
                                            March 31,                     Change
                                        2022           2021        Amount          %
                                                   (dollars in thousands)
Cost of revenue                     $    3,860      $  2,999      $   861        28.7  %
Research and development                 7,082         4,908        2,174        44.3  %
Sales and marketing                      4,775         4,085          690        16.9  %
General and administrative              10,591         5,218        5,373       103.0  %
Total stock-based compensation      $   26,308      $ 17,210      $ 9,098        52.9  %



                                       54
--------------------------------------------------------------------------------

Total stock-based compensation for the three months ended March 31, 2022
compared to the prior year period increased by $9.1 million primarily driven by
the efforts to expand our employee base across all of the Company's functions.

Other Income and Expense
                                                            Three Months Ended
                                                                March 31,
                                                           2022           2021          Change
                                                                     (in thousands)
Interest income                                         $      59      $      74      $    (15)
Interest expense                                          (14,087)       (14,731)          644

Other income (expense), net                                (3,027)           (85)       (2,942)

Gain (loss) on revaluation of embedded derivatives            531           (518)        1,049
Total                                                   $ (16,524)     $ (15,260)     $ (1,264)


Interest Income

Interest income is derived from investment income on our cash balances primarily from money market funds.

Interest income for the three months ended March 31, 2022 compared to the prior year period was essentially unchanged.

Interest charges


Interest expense is from our debt held by third parties. Interest expense for
the three months ended March 31, 2022 as compared to the prior year period
decreased by $0.6 million. This decrease was primarily due to lower interest
expense as a result of refinancing our notes at a lower interest rate, and the
elimination of the amortization of the debt discount associated with notes that
have been converted to equity.

Other income (expenses), net


Other income (expense), net, is primarily derived from investments in joint
ventures, the impact of foreign currency translation, and adjustments to fair
value for derivatives. Other income (expense), net for the three months ended
March 31, 2022 as compared to the prior year period was less by $2.9 million due
primarily as a result of the revaluation of the Option to purchase Class A
common stock.

Gain (loss) on revaluation of embedded derivatives


Gain (loss) on revaluation of embedded derivatives is derived from the change in
fair value of our sales contracts of embedded EPP derivatives valued using
historical grid prices and available forecasts of future electricity prices to
estimate future electricity prices.

Gain (loss) on revaluation of embedded derivatives for the three months ended
March 31, 2022 as compared to the prior year period improved by $1.0 million due
to the change in fair value of our embedded EPP derivatives in our sales
contracts.

Provision for income taxes

                                Three Months Ended
                                     March 31,                      Change
                                  2022             2021       Amount         %
                                           (dollars in thousands)
Income tax provision      $      564              $ 124      $  440       354.8  %

The provision for income taxes primarily includes income taxes in the foreign jurisdictions where we operate. We maintain a full valuation allowance for domestic deferred tax assets, including net operating loss and certain tax credit carryforwards.

                                       55
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Increase in provision for income taxes for the three months ended March 31, 2022 compared to the prior year period was primarily due to fluctuations in effective tax rates on income earned by international entities.


Net Loss Attributable to Noncontrolling Interests and Redeemable Noncontrolling
Interests

                                                                       Three Months Ended
                                                                            March 31,                            Change
                                                                     2022               2021             Amount             %
                                                                           

(in thousands of dollars) Net loss attributable to non-controlling interests and refundable non-controlling interests

                              $   (4,388)         $ (4,892)         $   504             10.3  %


Net loss attributable to noncontrolling interests is the result of allocating
profits and losses to noncontrolling interests under the hypothetical
liquidation at book value ("HLBV") method. HLBV is a balance sheet-oriented
approach for applying the equity method of accounting when there is a complex
structure, such as the flip structure of the PPA Entities.

Net loss attributable to noncontrolling interests and redeemable noncontrolling
interests for the three months ended March 31, 2022 as compared to the prior
year period changed by $0.5 million due to decreased losses in our PPA Entities,
which are allocated to our noncontrolling interests.


Cash and capital resources


As of March 31, 2022, we had cash and cash equivalents of $286.0 million. Our
cash and cash equivalents consist of highly liquid investments with maturities
of three months or less, including money market funds. We maintain these
balances with high credit quality counterparties, continually monitor the amount
of credit exposure to any one issuer and diversify our investments in order to
minimize our credit risk.

As of March 31, 2022, we had $292.4 million of total outstanding recourse debt,
$230.4 million of non-recourse debt and $18.4 million of other long-term
liabilities. For a complete description of our outstanding debt, please see Note
7 -   Outstanding Loans and Security Agreements   in Part I, Item 1, Financial
Statements.

The combination of our existing cash and cash equivalents is expected to be
sufficient to meet our anticipated cash flow needs for the next 12 months and
thereafter for the foreseeable future. If these sources of cash are insufficient
to satisfy our near-term or future cash needs, we may require additional capital
from equity or debt financings to fund our operations, in particular, our
manufacturing capacity, product development and market expansion requirements,
to timely respond to competitive market pressures or strategic opportunities, or
otherwise. We may, from time to time, engage in a variety of financing
transactions for such purposes, including factoring our accounts receivable. We
may not be able to secure timely additional financing on favorable terms, or at
all. The terms of any additional financings may place limits on our financial
and operating flexibility. If we raise additional funds through further
issuances of equity or equity-linked securities, our existing stockholders could
suffer dilution in their percentage ownership of us, and any new securities we
issue could have rights, preferences and privileges senior to those of holders
of our common stock.

Our future capital requirements will depend on many factors, including our rate
of revenue growth, the timing and extent of spending on research and development
efforts and other business initiatives, the rate of growth in the volume of
system builds and the need for additional manufacturing space, the expansion of
sales and marketing activities both in domestic and international markets,
market acceptance of our products, our ability to secure financing for customer
use of our Energy Servers, the timing of installations, and overall economic
conditions including the impact of COVID-19 on our ongoing and future
operations. In order to support and achieve our future growth plans, we may need
or seek advantageously to obtain additional funding through an equity or debt
financing. Failure to obtain this financing or financing in future quarters will
affect our results of operations, including revenue and cash flows.
                                       56
--------------------------------------------------------------------------------

As of March 31, 2022, the current portion of our total debt is $30.3 million, of
which $17.9 million is outstanding non-recourse debt. We expect a certain
portion of the non-recourse debt will be refinanced by the applicable PPA Entity
prior to maturity.

The following is a summary of our consolidated sources and uses of cash, cash equivalents and restricted cash (in thousands):

                                         Three Months Ended
                                             March 31,
                                        2022           2021

Net cash provided by (used in):
Operating activities                 $ (92,443)     $ (89,035)
Investing activities                   (18,510)       (12,932)
Financing activities                   (10,112)        51,150


Net cash provided by (used in) our PPA Entities, which are incorporated into the
condensed consolidated statements of cash flows, was as follows (in thousands):

                                                                    Three Months Ended
                                                                         March 31,
                                                                     2022            2021

  PPA Entities ¹
  Net cash provided by PPA operating activities                $    7,658   

$5,976

Net cash provided by (used in) PPA financing activities (8,114)

(9,506)



1 The PPA Entities' operating and financing cash flows are a subset of our
consolidated cash flows and represent the stand-alone cash flows prepared in
accordance with U.S. GAAP. Operating activities consist principally of cash used
to run the operations of the PPA Entities, the purchase of Energy Servers from
us and principal reductions in loan balances. Financing activities consist
primarily of changes in debt carried by our PPAs, and payments from and
distributions to noncontrolling partnership interests. We believe this
presentation of net cash provided by (used in) PPA activities is useful to
provide the reader with the impact to consolidated cash flows of the PPA
Entities in which we have only a minority interest.

Operational activities


Our operating activities have consisted of net loss adjusted for certain
non-cash items plus changes in our operating assets and liabilities or working
capital. The increase in cash used in operating activities during the three
months ended March 31, 2022 as compared to the prior year period was primarily
the result of an increase in our net loss and an increase in our net working
capital of $56.0 million in the three months ended March 31, 2022 due to the
timing of revenue transactions and corresponding collections and the increase in
inventory levels to support future demand.

Investing activities


Our investing activities have consisted of capital expenditures that include
investment to increase our production capacity. We expect to continue such
activities as our business grows. Cash used in investing activities of $18.5
million during the three months ended March 31, 2022 was primarily the result of
expenditures on tenant improvements for a newly leased engineering building in
Fremont, California. We expect to continue to make capital expenditures over the
next few quarters to prepare our new manufacturing facility in Fremont,
California for production, which includes the purchase of new equipment and
other tenant improvements. We intend to fund these capital expenditures from
cash on hand as well as cash flow to be generated from operations. We may also
evaluate and arrange equipment lease financing to fund these capital
expenditures.
                                       57
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Fundraising activities


Historically, our financing activities have consisted of borrowings and
repayments of debt including to related parties, proceeds and repayments of
financing obligations, distributions paid to noncontrolling interests and
redeemable noncontrolling interests, and the proceeds from the issuance of our
common stock. Net cash used in financing activities during the three months
ended March 31, 2022 was $(10.1) million, an increase of $61.3 million compared
to the prior year period, primarily due to the proceeds in 2022 from stock
option exercises and the sale of shares under our 2018 Employee Stock Purchase
Plan.

Off-balance sheet arrangements


We include in our condensed consolidated financial statements all assets and
liabilities and results of operations of our PPA Entities that we have entered
into and over which we have substantial control. For additional information, see
Note 13 -   Portfolio Financings   in Part II, Item 8, Financial Statements and
Supplementary Data.

We have not entered into any other transactions that have generated relationships with non-consolidated entities or financial partnerships or special purpose entities. Consequently, from March 31, 2022 and 2021, we had no off-balance sheet arrangements.

Significant Accounting Policies and Estimates


The condensed consolidated financial statements have been prepared in accordance
with generally accepted accounting principles as applied in the United States
("U.S. GAAP") The preparation of the condensed consolidated financial statements
requires us to make estimates and assumptions that affect the reported amounts
of assets, liabilities, revenues, costs and expenses and related disclosures.
Our discussion and analysis of our financial results under Results of Operations
above are based on our audited results of operations, which we have prepared in
accordance with U.S. GAAP. In preparing these condensed consolidated financial
statements, we make assumptions, judgments and estimates that can affect the
reported amounts of assets, liabilities, revenues and expenses, and net income.
On an ongoing basis, we base our estimates on historical experience, as
appropriate, and on various other assumptions that we believe to be reasonable
under the circumstances. Changes in the accounting estimates are representative
of estimation uncertainty, and are reasonably likely to occur from period to
period. Accordingly, actual results could differ significantly from the
estimates made by our management. We evaluate our estimates and assumptions on
an ongoing basis. To the extent that there are material differences between
these estimates and actual results, our future financial statement presentation,
financial condition, results of operations and cash flows will be affected. We
believe that the following critical accounting policies involve a greater degree
of judgment and complexity than our other accounting policies. Accordingly,
these are the policies we believe are the most critical to understanding and
evaluating the consolidated financial condition and results of operations.

The accounting policies that most frequently require us to make assumptions,
judgments and estimates, and therefore are critical to understanding our results
of operations, include:

• Discussion on the first year of changes in financial position and results of operations;


•Revenue Recognition;

• Leases: incremental borrowing rate;

•Assessment of escalator protection plan (“PPE”) agreements;

•Valuation of certain financial instruments and customer financing receivables;

• Valuation of the assets and liabilities of the SK eco-factory Strategic investment;

• Incremental Borrowing Rate (“IBR”) by rental class;

•Stock-based compensation;

•Income taxes;

•Principles of Consolidation; and

•Allocation of profits and losses of consolidated entities to non-controlling interests and refundable non-controlling interests.

                                       58

————————————————– ——————————


Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for
our fiscal year ended December 31, 2021 provides a more complete discussion of
our critical accounting policies and estimates. During the three months ended
March 31, 2022, there were no significant changes to our critical accounting
policies and estimates.

© Edgar Online, source Previews

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Multi-State Cannabis Operator C3 Industries Activates Assets, Grows Revenue – New Cannabis Ventures https://lastjeudi.org/multi-state-cannabis-operator-c3-industries-activates-assets-grows-revenue-new-cannabis-ventures/ Wed, 04 May 2022 17:22:00 +0000 https://lastjeudi.org/multi-state-cannabis-operator-c3-industries-activates-assets-grows-revenue-new-cannabis-ventures/ Exclusive Interview with C3 Industries Co-Founder and CEO Ankur Rungta C3 Industries currently operates in four states: Oregon, Michigan, Massachusetts and Missouri. The multi-state operator is currently in the midst of a development phase, bringing production facilities and retail stores online across its footprint. Co-Founder and CEO Ankur Rungta last checked in with New Cannabis […]]]>

Exclusive Interview with C3 Industries Co-Founder and CEO Ankur Rungta

C3 Industries currently operates in four states: Oregon, Michigan, Massachusetts and Missouri. The multi-state operator is currently in the midst of a development phase, bringing production facilities and retail stores online across its footprint. Co-Founder and CEO Ankur Rungta last checked in with New Cannabis Ventures in September 2021, and he reconnected in 2022 to talk about company assets, new markets and growing income.

C3 Industries opens more points of sale.

Listen to the full interview or read the summary below:

Oregon

C3 Industries has growing and processing operations, as well as a retail store in Oregon. The company maintains its position in the market, but its growth efforts are largely focused on its other three markets, according to Rungta.

Michigan

When Rungta last spoke with New Cannabis Ventures, the company had an approximately 40,000 square foot indoor cultivation and processing facility in Michigan. C3 Industries is in the process of adding 90,000 square feet to this campus with completion scheduled for early July. The company also plans to roll out additional products, including edibles and beverages, in the Michigan market.

On the retail side of the business, C3 Industries has as many as eight stores in the state. It is in the process of building and opening six additional locations. Eventually, the company is aiming for 20 to 25 stores.

Massachusetts

Late last year, the company brought its growing and processing facility in Massachusetts online. It began wholesale from this facility in recent weeks, according to Rungta. He sees an opportunity to fill a gap of high-quality, full-spectrum products in this market.

C3 Industries also has three stores in Boston. The first opened in Dorchester in March and the other two are expected to open in the third quarter.

The company opened one of its Dorchester outlets earlier this year.

Missouri

The company now has its five stores open in Missouri. The stores are performing well and generating positive feedback from patients, according to Rungta. In recent months, the company has also brought its 15,000 square foot processing plant in St. Louis online. C3 Industries is also set to bring its 40,000 square foot cultivation facility in the state online.

C3 Industries has a vertical platform in the state, and there’s momentum behind an adult-use voting initiative. If this passes, the company will be able to be a major player in the Missouri market, according to Rungta.

New Markets

So far, C3 Industries has largely grown its business through organic means and will continue to seek licenses. The company is building apps in Connecticut and looking to get involved in the New York market. New Jersey was initially on the company’s radar, but the C3 Industries team ultimately decided against applying to that market.

The company is also considering acquisition opportunities in markets like Ohio. The team hopes to strike a deal this year and enter the market, according to Rungta. C3 Industries prefers vertical integration, so cultivation and retail assets are attractive.

new talent

As C3 Industries goes through this phase of development, it is also strengthening its team. The company has hired a new CFO: Valay Shah. Shah has 12 years of private equity experience; he was recently a partner at Apollo Global Management. Rungta and Vishal Rungta, his brother and co-founder, have known Shah for a long time. Shah will play a key role in mergers and acquisitions and capital markets in his role as chief financial officer.

C3 Industries adds new talent as it grows its business.

The company also recruited two new team members at the Vice President level. John Moyers has joined the team as Vice President of Marketing. He previously worked with Harvest Health & Recreation. Parks McMillan has joined the company as vice president of culture. He previously led cultivation at Colorado-based Seed & Smith.

The balance sheet of C3 Industries

NewLake Capital Partners provided $34 million in capital to fund the company’s Missouri cultivation project. Rungta is confident in C3 Industries’ balance sheet in terms of available cash and rental charges. It provides that the company has the capital it needs to execute its strategy. Rungta is also excited about the level of interest the company is seeing from different investors in the space. He expects the company to have the capital support it needs to execute mergers and acquisitions and other growth opportunities.

To date, much of the capital raised by the company has been through personal and direct relationships with high net worth individuals and family offices. The company has also attracted groups like Navy Capital, Welcan Capital and Madison Square Park Capital. He has sale-leaseback with NewLake, as well as a few other small sale-leasebacks with family offices. Additionally, a family office funded a small amount of senior debt, according to Rungta.

Going forward, the company will likely consider more institutional capital partnerships as it contemplates mergers and acquisitions and larger-scale development. REITs and debt and equity funds are all possibilities. The team is currently having broad conversations to determine how best to grow the business, according to Rungta.

A year of growth

C3 Industries was targeting $60 million to $70 million in revenue for 2021. The company was down to just under $60 million. The company’s revenue losses were largely related to delays in construction and equipment procurement related to the launch of new projects. But the company expects a significant ramp-up in 2022.

The company is targeting more than $100 million in revenue this year, according to Rungta. Assets brought online, as well as complementary acquisitions, could impact revenues on a pro forma basis. The team also expects a decent EBITDA margin.

While the delays are still a challenge, the team is excited about its growing footprint in Massachusetts and Missouri. C3 Industries is focused on upgrading its assets and leveraging its platform for cash flow and profitability. So far, much of the company’s cash flow has been generated in Oregon and Michigan, two very competitive markets. C3 Industries seeks to take what it has done in these competitive markets and bring it to new markets, including limited license states.

Construction and hiring are two persistent challenges, as well as the regulatory landscape. Rungta expects the next two years to determine which companies are able to become truly cash flow and EBITDA after tax and interest positive.

To learn more, visit the C3 Industries website. Listen to the full interview:

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Carrie Pallardy, a Chicago-based writer and editor, began her career covering the healthcare industry and now writes, edits and interviews subject matter experts across multiple industries. As a published writer, Carrie continues to tell compelling and untold stories to her network of readers. For more information, contact us.

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EB-5 Developer’s Handbook for Construction Finance — New 3rd Edition — Hospitality Law Blog — April 29, 2022 https://lastjeudi.org/eb-5-developers-handbook-for-construction-finance-new-3rd-edition-hospitality-law-blog-april-29-2022/ Fri, 29 Apr 2022 18:14:02 +0000 https://lastjeudi.org/eb-5-developers-handbook-for-construction-finance-new-3rd-edition-hospitality-law-blog-april-29-2022/ April 29, 2022 Find out how JMBM’s Global Hospitality Group® can help you.Click here for the latest articles on EB-5 financing and here for C-PACE alternative financing. JMBM’s Global Hospitality Group® and EB-5 Finance Group™ are pleased to publish an updated edition of The EB-5 Developer’s Handbook for Construction Finance. This new and improved manual […]]]>

April 29, 2022

Find out how JMBM’s Global Hospitality Group® can help you.
Click here for the latest articles on EB-5 financing and here for C-PACE alternative financing.

JMBM’s Global Hospitality Group® and EB-5 Finance Group™ are pleased to publish an updated edition of The EB-5 Developer’s Handbook for Construction Finance. This new and improved manual provides essential resources for developers considering EB-5 funding for their next project.

The recent EB-5 Reform and Integrity Act of 2022 and the reauthorization of the Regional Center Program, a critical component of EB-5’s success, has sparked renewed interest in low-cost funding opportunities. program cost. The Global Hospitality Group® has developed an approach to guide clients through the current EB-5 process with minimal financial risk and execute financing with a high degree of confidence.

The EB-5 Developer’s Handbook for Construction Finance helps developers assess potential EB-5 funding opportunities while avoiding potential pitfalls for the unwary.

the Manual includes articles on the following topics:

  • What is EB-5? What are its essentials?
  • How is EB-5 different this time around?
  • Is EB-5 still viable for developers now that it’s been reauthorized?
  • What is the optimal EB-5 construction financing structure for development projects?
  • How much? How cheap? How certain? How long?
  • What are the most common mistakes developers make with EB-5 funding?
  • Who do I need on my EB-5 fundraising team?

To download a free copy of The EB-5 Developer’s ManualClick here.

If you would like to discuss any of the issues presented in the manual, please contact us.


David Sudeck is a senior member of JMBM’s Global Hospitality Group® and JMBM’s Real Estate Department. His practice focuses on the complex issues associated with large commercial real estate projects, particularly those involving hotels, resorts and mixed-use projects.

David is a seasoned real estate lawyer and negotiator with an international reputation for his expertise on projects with a hotel component, and he focuses in particular on providing practical advice on critical brand management and deal issues. He is also widely recognized for providing top-notch business and legal advice to hotel owners and lenders on the purchase, sale, development, construction, financing, leasing and sale-leaseback of properties.

When not working on traditional senior debt or mezzanine financings for owners or lenders, David is likely working on creative joint ventures or “alternative” financings of commercial property assessed as clean energy (C-PACE) or EB- 5, as head of the C-PACE and EB-5 Finance Groups of the firm. Over the past 12 months, David and his team have closed over $350 million in C-PACE financings, and David has been involved in nearly all of the $1.5 billion in EB-5 financings the company has has managed. David also serves on the Public Policy Committee of IIUSA, the EB-5 industry trade group for regional centers.

Contact David at +1-310-201-3518 or DSudeck@jmbm.com


Photo by Jim ButlerJim Butler is one of the founders of the JMBM law firm and president of its real estate department. He founded and chairs the firm’s Global Hospitality Group®, which provides business and legal advice to owners, developers and investors of commercial real estate, particularly hotels, resorts, restaurants, spas, residences for the elderly and complex mixed-use projects. This advice includes buying, selling, development, financing, franchising, management, labor and employment, litigation, ADA, intellectual property, and specialty financing such as commercial properties valued as clean energy (C-PACE) and EB-5 questions for these properties.

Jim is recognized as one of the top hotel lawyers in the world and has led the Global Hospitality Group® in over $112 billion in hotel transactions and over 4,500 hotel properties located worldwide. They have assisted clients with over 2,500 hotel management and hotel franchise agreements and over 100 mixed-use hotel projects.

The JMBM team has closed over $350 million in C-PACE funding and advised over 100 EB-5 projects, closed over $1.5 billion in EB-5 funding and provided over half to our customers. EB-5 Investors magazine named Jim one of the top 25 EB-5 attorneys in the United States, and Jim serves on the Public Policy Committee of IIUSA, the EB-5 industry trade group for centers. regional.

Contact Jim at +1-310-201-3526 or jbutler@jmbm.com to discuss how we can help you.


How can we help? Brochure References Photo gallery

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ESSENTIAL PROPERTIES REALTY TRUST, INC. Management report and analysis of the financial situation and operating results. (Form 10-Q) https://lastjeudi.org/essential-properties-realty-trust-inc-management-report-and-analysis-of-the-financial-situation-and-operating-results-form-10-q/ Wed, 27 Apr 2022 20:52:10 +0000 https://lastjeudi.org/essential-properties-realty-trust-inc-management-report-and-analysis-of-the-financial-situation-and-operating-results-form-10-q/ In this Quarterly Report on Form 10-Q, we refer to Essential Properties Realty Trust, Inc., a Maryland corporation, together with its consolidated subsidiaries, including its operating partnership, Essential Properties, L.P., as "we," "us," "our" or the "Company," unless we specifically state otherwise or the context otherwise requires. Special note regarding forward-looking statements This quarterly report […]]]>
In this Quarterly Report on Form 10-Q, we refer to Essential Properties Realty
Trust, Inc., a Maryland corporation, together with its consolidated
subsidiaries, including its operating partnership, Essential Properties, L.P.,
as "we," "us," "our" or the "Company," unless we specifically state otherwise or
the context otherwise requires.

Special note regarding forward-looking statements


This quarterly report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). In particular, many statements pertaining to our business and growth
strategies, investment, financing and leasing activities, and trends in our
business, including trends in the market for long-term, net leases of
freestanding, single-tenant properties, contain forward-looking statements. When
used in this quarterly report, the words "estimate," "anticipate," "expect,"
"believe," "intend," "may," "will," "should," "seek," "approximately," and
"plan," and variations of such words, and similar words or phrases, that are
predictions of future events or trends and that do not relate solely to
historical matters, are intended to identify forward-looking statements. You can
also identify forward-looking statements by discussions of strategy, plans,
beliefs or intentions of management.

Forward-looking statements involve known and unknown risks and uncertainties
that may cause our actual results, performance or achievements to be materially
different from the results of operations or plans expressed or implied by such
forward-looking statements; accordingly, you should not rely on forward-looking
statements as predictions of future events. Forward-looking statements depend on
assumptions, data or methods that may be incorrect or imprecise, and may not be
realized. We do not guarantee that the transactions and events described will
happen as described (or that they will happen at all). The following factors,
among others, could cause actual results and future events to differ materially
from those set forth or contemplated in the forward-looking statements:

• general business and economic conditions;


•risks inherent in the real estate business, including tenant defaults or
bankruptcies, illiquidity of real estate investments, fluctuations in real
estate values and the general economic climate in local markets, competition for
tenants in such markets, potential liability relating to environmental matters
and potential damages from natural disasters;

•the performance and financial situation of our tenants;

•the availability of suitable properties in which to invest and our ability to acquire and lease such properties on favorable terms;

• our ability to renew leases, lease vacant space or re-let space as existing leases expire or are terminated;

•volatility and uncertainty in credit and broader financial markets, including potential fluctuations in the consumer price index (“CPI”);

•the degree and nature of our competition;

• our inability to generate sufficient cash flow to service our outstanding debt;

•our ability to access debt and equity capital on attractive terms;

•fluctuating interest rates;

•the availability of qualified personnel and our ability to retain our key executives;

• changes in, or the failure or inability to comply with, applicable law or regulation;

• our inability to continue to qualify for tax as a real estate investment trust (“REIT”);

• changes in the WE tax law and others WE laws, whether or not specific to REITs;

•any negative impact of the COVID-19 pandemic or other similar epidemics on the Company and its tenants; and

• the additional factors discussed in the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Quarterly Report and in our Annual Report on Form 10-K for the financial year closed December 31, 2021.

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You are cautioned not to place undue reliance on forward-looking statements,
which speak only as of the date of this quarterly report. While forward-looking
statements reflect our good faith beliefs, they are not guarantees of future
events or of our performance. We disclaim any obligation to publicly update or
revise any forward-looking statement to reflect changes in underlying
assumptions or factors, new information, data or methods, future events or other
changes, except as required by law.

Because we operate in a highly competitive and rapidly changing environment, new
risks emerge from time to time, and it is not possible for management to predict
all such risks, nor can management assess the impact of all such risks on our
business or the extent to which any risk, or combination of risks, may cause
actual results to differ materially from those contained in any forward-looking
statements. Given these risks and uncertainties, investors should not place
undue reliance on forward-looking statements as a prediction of actual events or
results.

-Overview

We are an internally managed real estate company that acquires, owns and manages
primarily single-tenant properties that are net leased on a long-term basis to
middle-market companies operating service-oriented or experience-based
businesses. We generally invest in and lease freestanding, single-tenant
commercial real estate properties where a tenant conducts activities that are
essential to the generation of the tenant's sales and profits. As of
March 31, 2022, 92.9% of our $257.9 million of annualized base rent was
attributable to properties operated by tenants in service-oriented and
experience-based businesses. "Annualized base rent" means annualized
contractually specified cash base rent in effect on March 31, 2022 for all of
our leases (including those accounted for as loans or direct financing leases)
commenced as of that date and annualized cash interest on our mortgage loans
receivable as of that date.

We were organized on January 12, 2018 as a Maryland corporation. We have elected
to be taxed as a REIT for federal income tax purposes beginning with the year
ended December 31, 2018, and we believe that our current organization,
operations and intended distributions will allow us to continue to so qualify.
Our common stock is listed on the New York Stock Exchange under the symbol
"EPRT".

Our primary business objective is to maximize stockholder value by generating
attractive risk-adjusted returns through owning, managing and growing a
diversified portfolio of commercially desirable properties. As of
March 31, 2022, we had a portfolio of 1,545 properties (inclusive of 174
properties which secure our investments in mortgage loans receivable) that was
diversified by tenant, industry, concept and geography, had annualized base rent
of $257.9 million and was 100.0% occupied. Our portfolio is built based on the
following core investment attributes:

Diversification. As of March 31, 2022, our portfolio was 100.0% occupied by 323
tenants operating 461 different brands, or concepts, in 16 industries across 46
states, with none of our tenants contributing more than 3.3% of our annualized
base rent. Our goal is that, over time, no more than 5% of our annualized base
rent will be derived from any single tenant or more than 1% from any single
property.

Long Lease Term. As of March 31, 2022, our leases had a weighted average
remaining lease term of 13.9 years (based on annualized base rent), with 4.9% of
our annualized base rent attributable to leases expiring prior to January 1,
2027. Our properties generally are subject to long-term net leases that we
believe provide us a stable base of revenue from which to grow our portfolio.

Extensive use of master leases. From March 31, 202262.1% of our annualized base rent was attributable to master leases.

Rent coverage ratio and tenant financial reports. From March 31, 2022the weighted average rent coverage ratio of our portfolio was 3.8x, and 98.6% of our leases (based on an annualized base rent) require the tenant to periodically provide us with level-specific financial information of the unit.

Contractual increase in base rent. From March 31, 202297.5% of our leases (based on annualized base rent) provided future base rent increases at a weighted average rate of 1.5% per annum.


Significant Use of Sale-Leaseback Investments. We seek to acquire properties
owned and operated by middle-market businesses and lease the properties back to
the operators pursuant to our standard lease form.

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In the three months ended March 31, 2022approximately 100.0% of our investments were sale-leaseback transactions.


Smaller, Low Basis Single-Tenant Properties. We generally invest in freestanding
"small-box" single- tenant properties. As of March 31, 2022, our average
investment per property was $2.3 million (which equals our aggregate investment
in our properties (including transaction costs, lease incentives and amounts
funded for construction in progress) divided by the number of properties owned
at such date), and we believe investments of similar size allow us to grow our
portfolio without concentrating a large amount of capital in individual
properties and limit our exposure to events that may adversely affect a
particular property. Additionally, we believe that many of our properties are
generally fungible and appropriate for multiple commercial uses, which reduces
the risk that a particular property may become obsolete and enhances our ability
to sell a property if we choose to do so.

Our competitive strengths

We believe the following competitive strengths set us apart from our competitors and enable us to compete in the single-tenant net rental market:


Carefully Constructed Portfolio of Recently Acquired Properties Leased to
Service-Oriented or Experience-Based Tenants. We have strategically constructed
a portfolio that is diversified by tenant, industry and geography and generally
avoids exposure to businesses that we believe are subject to pressure from
e-commerce businesses. Our properties are generally subject to long-term net
leases that we believe provide us with a stable base of revenue from which to
grow our business. As of March 31, 2022, we had a portfolio of 1,545 properties,
with annualized base rent of $257.9 million. These properties were carefully
selected by our management team in accordance with our focused and disciplined
investment strategy. Our portfolio is diversified with 323 tenants operating 461
different concepts across 46 states and 16 industries. None of our tenants
contributed more than 3.3% of our annualized base rent as of March 31, 2022, and
our strategy targets a scaled portfolio that, over time, derives no more than 5%
of its annualized base rent from any single tenant or more than 1% from any
single property.

•We focus on investing in properties leased to tenants operating in
service-oriented or experience-based businesses such as car washes, restaurants
(primarily quick service restaurants), early childhood education, medical and
dental services, convenience stores, automotive services, equipment rental,
entertainment and health and fitness, which we believe are generally more
insulated from e-commerce pressure than many others. As of March 31, 2022, 92.9%
of our annualized base rent was attributable to tenants operating
service-oriented and experience-based businesses.

•We believe that our portfolio's diversity and our rigorous and disciplined
underwriting decrease the impact on us of an adverse event affecting a specific
tenant, industry or region, and our focus on leasing to tenants in industries
that we believe are well-positioned to withstand competition from e-commerce
businesses increases the stability and predictability of our rental revenue.

Experienced and Proven Management Team. Our senior management has significant
experience in the net-lease industry and a track record of growing net-lease
businesses to significant scale.

•Our senior management team has been responsible for our focused and disciplined
investment strategy and for developing and implementing our investment sourcing,
underwriting, closing and asset management infrastructure, which we believe can
support significant investment growth without a proportionate increase in our
operating expenses. As of March 31, 2022, exclusive of our initial investment in
a portfolio of 262 net leased properties, consisting primarily of restaurants,
that we acquired on June 16, 2016 as part of the liquidation of General Electric
Capital Corporation for an aggregate purchase price of $279.8 million (including
transaction costs) (the "Initial Portfolio"), 84.6% of our portfolio's
annualized base rent was attributable to internally originated sale-leaseback
transactions and 85.7% was acquired from parties who had previously engaged in
one or more transactions that involved a member of our senior management team
(including operators and tenants and other participants in the net lease
industry, such as brokers, intermediaries and financing sources). The
substantial experience, knowledge and relationships of our senior leadership
team provide us with an extensive network of contacts that we believe allows us
to originate attractive investment opportunities and effectively grow our
business.

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Differentiated Investment Strategy. We seek to acquire and lease freestanding,
single-tenant commercial real estate facilities where a tenant conducts
activities at the property that are essential to the generation of its sales and
profits. We primarily seek to invest in properties leased to unrated middle-
market companies that we determine have attractive credit characteristics and
stable operating histories. We believe middle-market companies are underserved
from a capital perspective and that we can offer them attractive real estate
financing solutions while allowing us to enter into lease agreements that
provide us with attractive risk-adjusted returns. Furthermore, many net-lease
transactions with middle- market companies involve properties that are
individually relatively small, which allows us to avoid concentrating a large
amount of capital in individual properties. We maintain close relationships with
our tenants, which we believe allows us to source additional investments and
become the capital provider of choice as our tenants' businesses grow and their
real estate needs increase.

Asset Base Allows for Significant Growth. Building on our senior leadership
team's experience of more than 20 years in net-lease real estate investing, we
have developed leading origination, underwriting, financing and property
management capabilities. Our platform is scalable, and we seek to leverage our
capabilities to improve our efficiency and processes to continue to seek
attractive risk- adjusted growth. While we expect that our general and
administrative expenses could increase as our portfolio grows, we expect that
such expenses as a percentage of our portfolio and our revenues will decrease
over time due to efficiencies and economies of scale. With our smaller asset
base relative to other peers that also focus on acquiring net leased real
estate, we believe that we can achieve superior growth through manageable
investment volume.

Disciplined Underwriting Leading to Strong Portfolio Characteristics. We
generally seek to invest in single assets or portfolios of assets through
transactions which range in an aggregate purchase price from $2 million to $50
million. Our size allows us to focus on investing in a segment of the market
that we believe is underserved from a capital perspective and where we can
originate or acquire relatively smaller assets on attractive terms that provide
meaningful growth to our portfolio. In addition, we seek to invest in
commercially desirable properties that are suitable for use by different
tenants, offer attractive risk-adjusted returns and possess characteristics that
reduce our real estate investment risks.

Extensive Tenant Financial Reporting Supports Active Asset Management. We seek
to enter into lease agreements that obligate our tenants to periodically provide
us with corporate and/or unit-level financial reporting, which we believe
enhances our ability to actively monitor our investments, manage credit risk,
negotiate lease renewals and proactively manage our portfolio to protect
stockholder value. As of March 31, 2022, leases contributing 98.6% of our
annualized base rent required tenants to provide us with specified unit-level
financial information, and leases contributing 98.8% of our annualized base rent
required tenants to provide us with corporate-level financial reporting.

Our business and growth strategies


Our primary business objective is to maximize stockholder value by generating
attractive risk-adjusted returns through owning, managing and growing a
diversified portfolio of commercially desirable properties. We intend to pursue
our objective through the following business and growth strategies.

Structure and Manage Our Diverse Portfolio with Focused and Disciplined
Underwriting and Risk Management. We seek to maintain the stability of our
rental revenue and maximize the long-term return on our investments while
continuing our growth by using our focused and disciplined underwriting and risk
management expertise. When underwriting assets, we focus on commercially
desirable properties, with strong operating performance, healthy rent coverage
ratios and tenants with attractive credit characteristics.

•Leasing. In general, we seek to enter into leases with (i) relatively long
terms (typically with initial terms of 15 years or more and tenant renewal
options); (ii) attractive rent escalation provisions; (iii) healthy rent
coverage ratios; and (iv) tenant obligations to periodically provide us with
financial information, which provides us with information about the operating
performance of the leased property and/or tenant and allows us to actively
monitor the security of payments under the lease on an ongoing basis. We
strongly prefer to use master lease structures, pursuant to which we lease
multiple properties to a single tenant on a unitary (i.e., "all or none") basis.
In addition, in the context of our sale-leaseback investments, we generally seek
to establish contract rents that are at or below prevailing market rents, which
we believe enhances tenant retention and reduces our releasing risk if a lease
is rejected in a bankruptcy proceeding or expires.

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•Diversification. We monitor and manage the diversification of our portfolio in
order to reduce the risks associated with adverse developments affecting a
particular tenant, property, industry or region. Our strategy targets a scaled
portfolio that, over time, will (1) derive no more than 5% of its annualized
base rent from any single tenant or more than 1% of its annualized base rent
from any single property, (2) be primarily leased to tenants operating in
service-oriented or experience- based businesses and (3) avoid significant
credit concentrations. While we consider these criteria when making investments,
we may be opportunistic in managing our business and make investments that do
not meet one or more of these criteria if we believe the opportunity presents an
attractive risk-adjusted return.

•Asset Management. We are an active asset manager and regularly review each of
our properties to evaluate various factors, including, but not limited to,
changes in the business performance of the operator at the property, credit of
the tenant and local real estate market conditions. Among other things, we use
Moody's Analytics RiskCalc, which is a model for predicting private company
defaults based on Moody's Analytics Credit Research Database, to proactively
detect credit deterioration. Additionally, we monitor market rents relative to
in-place rents and the amount of tenant capital expenditures in order to refine
our tenant retention and alternative use assumptions. Our management team
utilizes our internal credit diligence to monitor the credit profile of each of
our tenants on an ongoing basis. We believe that this proactive approach enables
us to identify and address credit issues in a timely manner and to determine
whether there are properties in our portfolio that are appropriate for
disposition.

•In addition, as part of our active portfolio management, we may selectively
dispose of assets that we conclude do not offer a return commensurate with the
investment risk, contribute to unwanted credit, industry or tenant
concentrations, or may be sold at a price we determine is attractive. We believe
that our underwriting processes and active asset management enhance the
stability of our rental revenue by reducing default losses and increasing the
likelihood of lease renewals.

Focus on Relationship-Based Sourcing to Grow Our Portfolio by Originating
Sale-Leaseback Transactions. We plan to continue our disciplined growth by
originating primarily sale-leaseback transactions and opportunistically making
acquisitions of properties subject to net leases that contribute to our
portfolio's tenant and industry diversification. As of March 31, 2022, exclusive
of the Initial Portfolio, 84.6% of our portfolio's annualized base rent was
attributable to internally originated sale- leaseback transactions and 85.7% was
acquired from parties who had previously engaged in transactions that involved a
member of our senior management team (including operators and tenants and other
participants in the net lease industry, such as brokers, intermediaries and
financing sources). In addition, we seek to leverage our relationships with our
tenants to facilitate investment opportunities, including selectively agreeing
to reimburse certain of our tenants for development costs at our properties in
exchange for contractually specified rent that generally increases
proportionally with our funding. As of March 31, 2022, exclusive of the Initial
Portfolio, approximately 45.0% of our investments were sourced from operators
and tenants who had previously consummated a transaction involving a member of
our management team. We believe our senior management team's reputation,
in-depth market knowledge and extensive network of longstanding relationships in
the net lease industry provide us access to an ongoing pipeline of attractive
investment opportunities.

Focus on Middle-Market Companies in Service-Oriented or Experience-Based
Businesses. We primarily focus on investing in properties that we lease on a
long-term, triple-net basis to middle-market companies that we determine have
attractive credit characteristics and stable operating histories. We beleive
properties leased to middle-market companies may offer us the opportunity to
achieve superior risk-adjusted returns as a result of our extensive and
disciplined credit and real estate analysis, lease structuring and portfolio
composition. We believe our capital solutions are attractive to middle- market
companies, as such companies often have limited financing options as compared to
larger, credit rated organizations. We also believe that, in many cases, smaller
transactions with middle- market companies will allow us to maintain and grow
our portfolio's diversification. Middle-market companies are often willing to
enter into leases with structures and terms that we consider attractive (such as
master leases and leases that require ongoing tenant financial reporting) and
believe contribute to the stability of our rental revenue.

•In addition, we emphasize investments in properties leased to tenants engaged
in service-oriented or experience-based businesses, such as, car washes,
restaurants (primarily quick service restaurants), early childhood education,
medical and dental services, convenience stores, automotive services, equipment
rental, entertainment and health and fitness, as we believe these businesses are
generally more insulated from e-commerce pressure than many others.

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Internal Growth Through Long-Term Triple-Net Leases That Provide for Periodic
Rent Escalations. We seek to enter into long-term (typically with initial terms
of 15 years or more and with tenant renewal options), triple-net leases that
provide for periodic contractual rent escalations. As of March 31, 2022, our
leases had a weighted average remaining lease term of 13.9 years (based on
annualized base rent), with only 4.9% of which provide for annal rent increases
of our annualized base rent attributable to leases expiring prior to January 1,
2027. In addition, 97.5% of our leases (based on annualized base rent) provided
for increases in future base rent at a weighted average of 1.5% per year.

Actively Manage Our Balance Sheet to Maximize Capital Efficiency. We seek to
maintain a prudent balance between debt and equity financing and to maintain
funding sources that lock in long-term investment spreads and limit interest
rate sensitivity. We have access to multiple sources of debt capital, including,
but not limited to, the public unsecured debt market, asset-backed bond market,
through our Master Trust Funding Program, and bank debt, such as through our
revolving credit facility and unsecured term loan facilities. We believe that
our level of net debt, over time, should generally always be less than six times
our annualized adjusted EBITDAre (as defined in "Non-GAAP Financial Measures"
below) on a quarterly and annual basis. Since our initial public offering in
2018, our quarterly net debt to annualized adjusted EBITDAre has averaged 4.6x.

Historical investment and disposal activity


The following table sets forth select information about our quarterly investment
activity for the quarters ended June 30, 2020 through March 31, 2022 (dollars in
thousands):

                                                                           Three Months Ended
                                                                  September 30,         December 31,
                                           June 30, 2021              2021                  2021               March 31, 2022
Investment volume                        $      223,186          $    230,755          $    322,203          $       237,795
Number of transactions                                  34                    31                    55                       23
Property count                                          94                    85                    96                      105
Avg. investment per unit                 $        2,354          $      2,676          $      3,230          $         2,187
Cash cap rates 1                                     7.1 %                 7.0 %                  6.9%                     7.0%
GAAP cap rates 2                                     7.8 %                 7.9 %                  7.8%                     7.8%
Master lease percentage 3,4                            83%                   80%                   59%                      83%
Sale-leaseback percentage 3,5                          88%                   84%                   96%                     100%
Percentage of financial reporting
3,6                                                   100%                  100%                   98%                     100%
Rent coverage ratio                                   2.7x                  2.8x                  3.0x                     3.3x
Lease term (in years)                                 13.5                  16.4                  16.3                     15.0

                                                                           Three Months Ended
                                                                  September 30,         December 31,
                                           June 30, 2020              2020                  2020               March 31, 2021
Investment volume                        $       42,369          $    148,877          $    244,078          $       197,816
Number of transactions                                  11                    19                    33                       22
Property count                                          13                    50                   108                       74
Avg. investment per unit                 $        2,870          $      2,866          $      2,218          $         2,650
Cash cap rates 1                                     7.4 %                 7.1 %                 7.1 %                    7.0 %
GAAP cap rates 2                                     8.1 %                 7.9 %                 7.7 %                    7.9 %
Master lease percentage 3,4                           68 %                  79 %                  89 %                      79%
Sale-leaseback percentage 3,5                        100 %                  92 %                  88 %                      85%
Percentage of financial reporting
3,6                                                  100 %                 100 %                 100 %                     100%
Rent coverage ratio                                   4.3x                  2.8x                  3.6x                     3.0x
Lease term (in years)                                 16.7                  17.6                  16.3                     16.1

_____________________________________

(1)   Annualized cash base rent for the first full month after the investment
divided by the gross investment in the property plus transaction costs.
(2)  GAAP rent for the first twelve months after the investment divided by the
gross investment in the property plus transaction costs.
(3)  As a percentage of annualized base rent.

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(4)  Includes investments in mortgage loans receivable collateralized by more
than one property.
(5)  Includes investments in mortgage loans receivable made in support of
sale-leaseback transactions.
(6)  Tenants party to leases that obligate them to periodically provide us with
corporate and/or unit-level financial reporting, as a percentage of our
annualized base rent.

The following table sets forth select information about our quarterly
disposition activity for the quarters ended June 30, 2020 through March 31, 2022
(dollars in thousands):
                                                                           Three Months Ended
                                                               September 30,
                                        June 30, 2021               2021               December 31, 2021           March 31, 2022
Disposition volume1                   $       19,578          $      10,089          $            4,466          $        18,443
Cash cap rate on leased assets
2                                                 7.1 %                  6.5 %                        6.0%                     7.1%
Leased properties sold 3                           6                     11                           2                        6
Vacant properties sold 3                           1                      -                           -                        -

                                                                           Three Months Ended
                                                               September 30,
                                        June 30, 2020               2020               December 31, 2020           March 31, 2021
Disposition volume1                   $        3,420          $      19,595          $           39,042          $        25,197
Cash cap rate on leased assets
2                                                 6.8 %                  7.0 %                       7.4 %                    7.1 %
Leased properties sold 3                           3                     11                          21                       15
Vacant properties sold 3                           -                      3                           2                        1

_____________________________________

(1)   Net of transaction costs.
(2)   Annualized base rent at time of sale divided by the gross sale price
(excluding transaction costs) for the property.
(3)   Property count excludes dispositions of undeveloped land parcels or
dispositions where only a portion of the owned parcel was sold.

Update on the COVID-19 pandemic


On March 11, 2020, the World Health Organization declared the outbreak of the
novel coronavirus ("COVID-19") a pandemic. For much of 2020, the global spread
of COVID-19 created significant uncertainty and economic disruption, which
largely began to subside over the course of 2021 and generally has significantly
diminished in early 2022. However, the continuing impact of the COVID-19
pandemic and its duration are unclear, and variants of the virus, such as Delta
and Omicron, and vaccine hesitancy in certain areas could erode the progress
that has been made against the virus, or exacerbate or prolong the remaining
impact of the pandemic. Conditions similar to those experienced in 2020, at the
height of the pandemic, could return should the vaccinations prove ineffective
against future variants of the virus. Should the impact of a variant of the
virus cause conditions to occur that are similar to those experienced in 2020,
increased uncertainty, disruption and instability in the macro-economic
environment could occur and government restrictions could again force our
tenants' businesses to shut-down or limit their operations, which would
adversely impact our operations, our financial condition, our liquidity and our
prospects. Further, the extent and duration of any such conditions cannot be
predicted with any reasonable certainty.

We continue to monitor the impact of COVID-19 on all aspects of our business,
including our portfolio and the creditworthiness of our tenants. In 2020, we
entered into deferral agreements with certain of our tenants and recognized
contractual base rent pursuant to these agreements as a component of rental
revenue. These rent deferrals were negotiated on a tenant-by-tenant basis, and,
in general, allowed a tenant to defer all or a portion of their rent for a
portion of 2020, with all of the deferred rent to be paid to us pursuant to a
schedule that generally extends up to 24 months from the original due date of
the deferred rent. While our tenants' businesses and operations have largely
returned to pre-pandemic levels, any new developments that cause a
deterioration, or further deterioration, in our tenants' ability to operate
their businesses, or delays in the supply of products or services to our tenants
from vendors they require to operate their businesses, could cause our tenants
to be unable or unwilling to meet their contractual obligations to us, including
the payment of rent (including deferred rent), or to request further rent
deferrals or other concessions. The likelihood of this circumstance would
increase if variants of COVID-19, such as Delta and Omicron, intensify or
persist for a prolonged period. Additionally, whether the pandemic has caused a
material secular change in consumer behavior is not yet known as it pertains to
the patronage of service-based and/or experience-based businesses, but should
changes occur that are material, many

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of our tenants would be adversely affected and their ability to meet their
obligations to us could be further impaired. During the deferral period, the
deferral agreements reduced our cash flow from operations, reduced our cash
available for distribution and adversely affected our ability to make cash
distributions to common stockholders. If tenants are unable to repay their
deferred rent, we will not receive cash in the future in accordance with our
expectations.

Cash and capital resources


As of March 31, 2022, we had $3.3 billion of net investments in our income
property portfolio, consisting of investments in 1,545 properties (inclusive of
174 properties which secure our investments in mortgage loans receivable), with
annualized base rent of $257.9 million. Substantially all of our cash from
operations is generated by our investment portfolio.

The liquidity requirements for operating our business consist primarily of
funding our investment activities, servicing our outstanding indebtedness and
paying our general and administrative expenses. The occupancy level of our
portfolio is 100.0% as of March 31, 2022 and, because substantially all of our
leases are triple-net (with our tenants generally responsible for the
maintenance, insurance and property taxes associated with the leased
properties), our liquidity requirements are not significantly impacted by the
occurrence of property costs. When a property becomes vacant because the tenant
has vacated the property due to default or at the expiration of the lease term
without a renewal or new lease being executed, we incur the property costs not
paid by the tenant, as well as those property costs accruing during the time it
takes to locate a new tenant or to sell the property. As of March 31, 2022, none
of our properties were vacant, and all properties were subject to a lease. We
expect to incur some property costs from time to time in periods during which
properties that become vacant are being marketed for lease or sale. In addition,
we may recognize an expense for certain property costs, such as real estate
taxes billed in arrears, if we believe the tenant is likely to vacate the
property before making payment on those obligations. The amount of such property
costs can vary quarter-to-quarter based on the timing of property vacancies and
the level of underperforming properties; however, we do not expect that such
costs will be significant to our operations.

We intend to continue to grow through additional investments in stand-alone
single tenant commercial properties. To accomplish this objective, we seek to
invest in real estate with a combination of debt and equity capital and with
cash from operations that we do not distribute to our stockholders. When we sell
properties, we generally reinvest the cash proceeds from our sales in new
property acquisitions. Our short-term liquidity requirements also include the
funding needs associated with 45 properties where we have agreed to provide
construction financing or reimburse the tenant for certain development,
construction and renovation costs in exchange for contractual payments of
interest or increased rent that generally increases in proportion with our level
of funding. As of March 31, 2022, we agreed to provide construction financing or
reimburse a tenant for certain development, construction and renovation costs in
an aggregate amount of $140.3 million, and, as of such date, we funded
$68.8 million of this commitment. We expect to fund the remainder of this
commitment by March 31, 2023.

Additionally, as of April 26, 2022, we were under contract to acquire 12
properties with an aggregate purchase price of $24.7 million, subject to
completion of our due diligence procedures and satisfaction of customary closing
conditions. We expect to meet our short-term liquidity requirements, including
our investment in potential future single tenant properties, primarily with our
cash and cash equivalents, net cash from operating activities, borrowings,
primarily under our Revolving Credit Facility, and through proceeds generated
from our ATM Program.

Our long-term liquidity requirements consist primarily of the funds necessary to
acquire additional properties and repay indebtedness. We expect to meet our
long-term liquidity requirements through various sources of capital, including
net cash from operating activities, borrowings under our Revolving Credit
Facility, future debt financings, sales of common stock under our ATM Program,
and proceeds from the selective sale of properties in our portfolio. However, at
any point in time, there may be a number of factors that could have a material
and adverse effect on our ability to access these capital sources, including
unfavorable conditions in the overall equity and credit markets, our level of
leverage, the portion of our portfolio that is unencumbered, borrowing
restrictions imposed by our existing debt agreements, general market conditions
for real estate and potentially REITs specifically, our operating performance,
our liquidity and general market perceptions about us. The success of our
business strategy will depend, to a significant degree, on our ability to access
these various capital sources to fund our future investments in single tenant
properties and thereby grow our cash flows.

An additional liquidity requirement is to fund the required level of distributions, typically 90% of our REIT’s taxable income (determined without taking into account the deduction of dividends paid and excluding any net capital gains), which are

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among the requirements for us to continue to qualify for taxation as a REIT.
During the three months ended March 31, 2022, our board of directors declared
total cash distributions of $0.26 per share of common stock. Holders of OP Units
and RSU's are entitled to distributions per unit equivalent to those paid by us
per share of common stock. During the three months ended March 31, 2022, we paid
$32.6 million of dividends and distributions to common stockholders and OP Unit
holders, and as of March 31, 2022, we recorded $34.3 million of dividends and
distributions payable to common stockholders and OP Unit holders. To continue to
qualify for taxation as a REIT, we must make distributions to our stockholders
aggregating annually at least 90% of our REIT taxable income, determined without
regard to the dividends paid deduction and excluding any net capital gain. As a
result of this requirement, we cannot rely on retained earnings to fund our
business needs to the same extent as other entities that are not structured as
REITs. If we do not have sufficient funds available to us from our operations to
fund our business needs, we will need to find alternative ways to fund those
needs. Such alternatives may include, among other things, selling properties
(whether or not the sales price is optimal or otherwise meets our strategic
long-term objectives), incurring additional indebtedness or issuing equity
securities in public or private transactions. The availability and
attractiveness of the terms of these potential sources of financing cannot be
assured.

Generally, our short-term debt capital needs are provided through our use of our
Revolving Credit Facility. We manage our long-term leverage position through the
issuance of long-term fixed-rate debt on an unsecured or secured basis.
Generally, we will seek to issue long-term debt on an unsecured basis as we
believe this facilitates greater flexibility in the management of our existing
portfolio and our ability to retain optionality in our overall financing and
growth strategy. By seeking to match the expected cash inflows from our
long-term leases with the expected cash outflows for our long-term debt, we seek
to "lock in," for as long as is economically feasible, the expected positive
spread between our scheduled cash inflows on our leases and the cash outflows on
our debt obligations. In this way, we seek to reduce the risk that increases in
interest rates would adversely impact our cash flows and results of operations.
Our ability to execute leases that contain annual rent escalations also
contributes to our ability to manage the risk of a rising interest rate
environment. We have and may continue to use various financial instruments
designed to mitigate the impact of interest rate fluctuations on our cash flows
and earnings, including hedging strategies such as interest rate swaps and caps,
depending on our analysis of the interest rate environment and the costs and
risks of such strategies. Although we are not required to maintain a particular
leverage ratio and may not be able to do so, we generally consider that, over
time it is prudent for a real estate company like ours, to maintain a level of
net debt (which includes recourse and non-recourse borrowings and any
outstanding preferred stock less cash and cash equivalents and restricted cash
available for future investment) that is less than six times our annualized
adjusted EBITDAre.

As of March 31, 2022, all of our long-term debt was fixed-rate debt or was
effectively converted to a fixed-rate for the term of the debt through hedging
strategies and our weighted average debt maturity was 5.8 years. As we continue
to invest in real estate properties and grow our real estate portfolio, we
intend to manage our long-term debt maturities to reduce the risk that a
significant amount of our debt will mature in any single year.

Future sources of debt capital may include public issuances of senior unsecured
notes, term borrowings from insurance companies, banks and other sources,
mortgage financing of a single-asset or a portfolio of assets and CMBS
borrowings. These sources of debt capital may offer us the opportunity to lower
our cost of funding and further diversify our sources of debt capital. Over
time, we may choose to issue preferred equity as a part of our overall strategy
for funding our investment objectives and growth goals. As our outstanding debt
matures, we may refinance it as it comes due or choose to repay it using cash
and cash equivalents or borrowings under our Revolving Credit Facility. We
believe that the cash generated by our operations, together with our cash and
cash equivalents at March 31, 2022, our borrowing availability under the
Revolving Credit Facility and our potential access to additional sources of
capital, will be sufficient to fund our operations for the foreseeable future
and allow us to invest in the real estate for which we currently have made
commitments.

Additional Guarantor Information


As permitted under Rule 13-01(a)(4)(vi), the Company has excluded the summarized
financial information for the Operating Partnership as the assets, liabilities
and results of operations of the Company and the Operating Partnership are not
materially different than the corresponding amounts presented in the
consolidated financial statements of the Company, and management believes such
summarized financial information would be repetitive and not provide incremental
value to investors.

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Description of certain debts


The following table summarizes our outstanding indebtedness as of March 31, 2022
and December 31, 2021:

                                                                          Principal Outstanding                        Weighted Average Interest Rate (1)
                                                                     March 31,           December 31,             March 31,                       December 31,
(in thousands)                             Maturity Date                2022                 2021                   2022                              2021
Unsecured term loans:
2024 Term Loan                              April 2024             $   200,000          $    200,000                3.3%                              3.3%
2027 Term Loan                             February 2027               430,000               430,000                2.7%                           

3.0%

Senior unsecured notes                       July 2031                 400,000               400,000                3.1%                           

3.1%

Revolving Credit Facility                  February 2026               147,000               144,000                1.4%                           

1.3%


Total principal outstanding                                        $ 1,177,000          $  1,174,000                2.8%                         

2.9%

_____________________________________

(1)Interest rates are shown taking into account our interest rate swap and lock-in agreements, where applicable.

2024 Unsecured Revolving Credit Facility and Term Loan


Through our Operating Partnership, we are party to an Amended and Restated
Credit Agreement with a group of lenders, which was amended on February 10, 2022
(the "Credit Agreement"), and which, as amended, provides for revolving loans of
up to $600.0 million (the "Revolving Credit Facility") and an additional $200.0
million term loan (the "2024 Term Loan").

As amended, the Revolving Credit Facility is scheduled to mature on February 10,
2026, with two extension options of six-month periods each, exercisable by the
Operating Partnership subject to the satisfaction of certain conditions. The
2024 Term Loan matures on April 12, 2024. The loans under each of the Revolving
Credit Facility and the 2024 Term Loan initially bear interest at an annual rate
of applicable Adjusted Term SOFR (as defined in the Credit Agreement) plus an
applicable margin (which applicable margin varies between the Revolving Credit
Facility and the 2024 Term Loan). The Adjusted Term SOFR is a rate with a term
equivalent to the interest period applicable to the relevant borrowing. In
addition, the Operating Partnership is required to pay a revolving facility fee
throughout the term of the Revolving Credit Facility. The applicable margin and
the revolving facility fee rate are initially a spread and rate, as applicable,
set according to a leverage-based pricing grid. At the Operating Partnership's
election, on and after receipt of an investment grade corporate credit rating
from S&P, Moody's or Fitch, the applicable margin and the revolving facility fee
rate will be a spread and rate, as applicable, set according to the credit
ratings provided by S&P, Moody's and/or Fitch. Each of the Revolving Credit
Facility and the 2024 Term Loan is freely pre-payable at any time. Outstanding
credit extensions under the Revolving Credit Facility are mandatorily payable if
the amount of such credit extensions the revolving facility limit. The Operating
Partnership may re-borrow amounts paid down on the Revolving Credit Facility
prior to its maturity. Loans repaid under the 2024 Term Loan cannot be
reborrowed. The Credit Agreement has an accordion feature to increase, subject
to certain conditions, the maximum availability of credit (either through
increased revolving commitments or additional term loans) by up to
$600.0 million.

The Operating Partnership is the borrower under the Credit Agreement, and we and
each of the subsidiaries of the Operating Partnership that owns a direct or
indirect interest in an eligible real property asset are guarantors under the
Credit Agreement. Under the terms of the Credit Agreement, we are subject to
various restrictive financial and nonfinancial covenants which, among other
things, require us to maintain certain secured and unsecured leverage ratios and
fixed charge and debt service coverage ratios.

The Credit Agreement restricts our ability to pay distributions to our
stockholders under certain circumstances. However, we may make distributions to
the extent necessary to maintain our qualification as a REIT under the Code. The
Credit Agreement contains customary affirmative and negative covenants that,
among other things and subject to exceptions, limit or restrict our ability to
incur indebtedness and liens, consummate mergers or other fundamental changes,
dispose of assets, make certain restricted payments, make certain investments,
modify our organizational documents, transact with affiliates, change our fiscal
periods, provide negative pledge clauses, make subsidiary distributions, enter
into certain new lines of business or engage in certain activities, and fail to
meet the requirements for taxation as a REIT.

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Term Loan 2027


On February 18, 2022, we, through our Operating Partnership, amended our
existing $430.0 million term loan credit facility (the "2027 Term Loan") to,
among other things, reduce the Applicable Margin, extend the Maturity to
February 18, 2027 and make certain other changes consistent with market terms
and conditions. The 2027 Term Loan was available to be drawn in up to three
draws during the six-month period beginning on November 26, 2019 and, as of
March 31, 2022, we have borrowed the full $430.0 million available.

The borrowings under the 2027 Term Loan, as amended, bear interest at an annual
rate of applicable Adjusted Term SOFR (as defined in the Credit Agreement) plus
an applicable margin. The Adjusted Term SOFR is a rate with a term equivalent to
the interest period applicable to the relevant borrowing. The applicable margin
is initially a spread set according to a leverage-based pricing grid. At the
Operating Partnership's election, on and after receipt of an investment grade
corporate credit rating from S&P, Moody's or Fitch, the applicable margin will
be a spread set according to the credit ratings provided by S&P, Moody's and/or
Fitch. The 2027 Term Loan is pre-payable at any time by the Operating
Partnership without penalty. The 2027 Term Loan has an accordion feature to
increase, subject to certain conditions, the maximum availability of the
facility up to an aggregate of $500 million.

The Operating Partnership is the borrower under the 2027 Term Loan, and our
Company and each of its subsidiaries that owns a direct or indirect interest in
an eligible real property asset are guarantors under the facility. Under the
terms of the 2027 Term Loan, we are subject to various restrictive financial and
nonfinancial covenants which, among other things, require us to maintain certain
leverage ratios, cash flow and debt service coverage ratios, secured borrowing
ratios and a minimum level of tangible net worth.

The 2027 Term Loan restricts our ability to pay distributions to our
stockholders under certain circumstances. However, we may make distributions to
the extent necessary to maintain our qualification as a REIT under the Code. The
2027 Term Loan contains certain additional covenants that, subject to
exceptions, limit or restrict our incurrence of indebtedness and liens,
disposition of assets, transactions with affiliates, mergers and fundamental
changes, modification of organizational documents, changes to fiscal periods,
making of investments, negative pledge clauses and lines of business and REIT
qualification.

Senior Unsecured Notes

On June 22, 2021, the Operating Partnership issued $400 million aggregate
principal amount of 2031 Notes, resulting in net proceeds of $396.6 million. The
2031 Notes were issued by the Operating Partnership and the obligations of the
Operating Partnership under the 2031 Notes are fully and unconditionally
guaranteed on a senior basis by the Company. In May 2021, the Company entered
into a treasury-lock agreement which was designated as a cash flow hedge
associated with the expected public offering of the senior unsecured notes. In
June 2021, the agreement was settled in accordance with its terms.

The indenture and supplemental indenture creating the 2031 Notes contain various
restrictive covenants, including limitations on our ability to incur additional
secured and unsecured indebtedness. As of March 31, 2022, we were in compliance
with these covenants.

Cash Flows

Comparison of the three months ended March 31, 2022 and 2021


As of March 31, 2022, we had $14.3 million of cash and cash equivalents and no
restricted cash as compared to $42.8 million and $2.0 million, respectively, as
of March 31, 2021.

Cash flow for the three months ended March 31, 2022


During the three months ended March 31, 2022, net cash provided by operating
activities was $44.1 million. Our cash flows from operating activities, related
to our $26.8 million of net income, are primarily dependent upon the occupancy
level of our portfolio, the rental rates specified in our leases, the interest
on our loans and direct financing lease receivables, the collectability of rent
and interest income and the level of our operating expenses and other general
and administrative costs. In addition, our cash inflows from operating
activities reflect adjustments for non-cash items including depreciation and
amortization of tangible, intangible and right-of-use real estate assets,
amortization of deferred financing costs and other assets, loss on debt
extinguishment of $2.1 million, the provision for impairment of real estate of
$3.9 million, offset by $1.7 million of gains on dispositions of real estate,
net, and

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$6.2 million related to the recognition of straight-line rent receivables. In
addition, our cash provided by operating activities reflects the adjustment to
add back the non-cash impact of $2.8 million of equity-based compensation
expense.

Net cash used in investing activities during the three months ended
March 31, 2022 was $211.6 million. Our net cash used in investing activities
generally reflects the funds deployed in our investments in real estate,
including capital expenditures and the development of our construction in
progress, and in loans receivable, which totaled $240.6 million in the aggregate
for the quarter. These cash outflows were partially offset by $18.5 million of
proceeds from sales of investments, net of disposition costs, and $10.7 million
of principal collections on our loans and direct financing lease receivables.

Net cash provided by financing activities of $122.0 million during the three
months ended March 31, 2022 reflected net cash inflows of $158.3 million from
the issuance of common stock and $148.0 million of borrowings under the
Revolving Credit Facility. These cash inflows were partially offset primarily by
repayments of $145.0 million of borrowings under the Revolving Credit Facility
and the payment of $32.6 million in dividends.

Off-balance sheet arrangements

We had no off-balance sheet arrangements March 31, 2022.

Contractual obligations

The following table provides information about our contractual obligations at March 31, 2022:


                                                                                    Payment due by period
                                                                    April 1 -
                                                                   December 31,
(in thousands)                                   Total                 2022              2023 - 2024           2025 - 2026          Thereafter

Unsecured term loans                         $   630,000          $         -          $    200,000          $          -          $  430,000
Senior unsecured notes                           400,000                    -                     -                     -             400,000
Revolving Credit Facility                        147,000                    -                     -               147,000                   -

Financing the construction of tenants and

  Reimbursement Obligations (1)                   71,482               71,482                     -                     -                   -
Operating Lease Obligations (2)                   18,700                1,112                 2,132                 1,250              14,206
Total                                        $ 1,267,182          $    72,594          $    202,132          $    148,250          $  844,206

_____________________________________

(1)Includes obligations to reimburse certain of our tenants for construction
costs that they incur in connection with construction at our properties in
exchange for contractually specified rent that generally increases
proportionally with our funding.
(2)Includes $16.4 million of rental payments due under ground lease arrangements
where our tenants are directly responsible for payment.

Additionally, we may enter into commitments to purchase goods and services in
connection with the operation of our business. These commitments generally have
terms of one-year or less and reflect expenditure levels comparable to our
historical expenditures as adjusted for growth.

We have made an election to be taxed as a REIT for federal income tax purposes
beginning with our taxable year ended December 31, 2018; accordingly, we
generally will not be subject to federal income tax for the year ended
December 31, 2022 if we distribute all of our REIT taxable income, determined
without regard to the dividends paid deduction, to our stockholders.

Significant Accounting Policies and Estimates


The preparation of financial statements in conformity with accounting principles
generally accepted in the United States ("GAAP") requires our management to use
judgment in the application of accounting policies, including making estimates
and assumptions. Estimates and assumptions include, among other things,
subjective judgments regarding the fair values and useful lives of our
properties for depreciation and lease classification purposes, the
collectability of receivables and asset impairment analysis. We base estimates
on the best information available to us at the time, our experience and on
various other assumptions believed to be reasonable

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under the circumstances. These estimates affect the reported amounts of assets
and liabilities, disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting periods. If our judgment or interpretation of the facts and
circumstances relating to various transactions or other matters had been
different, it is possible that different accounting would have been applied,
resulting in a different presentation of our consolidated financial statements.
From time to time, we reevaluate our estimates and assumptions. In the event
estimates or assumptions prove to be different from actual results, adjustments
are made in subsequent periods to reflect more current estimates and assumptions
about matters that are inherently uncertain. A summary of our critical
accounting policies is included in our Annual Report on Form 10-K for the fiscal
year ended December 31, 2021 in the section entitled "Management's Discussion
and Analysis of Financial Condition and Results of Operations." We have not made
any material changes to these policies during the periods covered by this
quarterly report.

Our real estate investment portfolio


As of March 31, 2022, we had a portfolio of 1,545 properties, including 174
properties that secure our investments in mortgage loans receivable, that was
diversified by tenant, concept, industry and geography and had annualized base
rent of $257.9 million. Our 323 tenants operate 461 different concepts in 16
industries across 46 states. None of our tenants represented more than 3.3% of
our portfolio at March 31, 2022, and our top ten largest tenants represented
19.2% of our annualized base rent as of that date.

Diversification by tenant


As of March 31, 2022, our top ten tenants included the following concepts:
EquipmentShare, Captain D's, WhiteWater Express Car Wash, Cadence Education,
Festival Foods, Mammoth Holdings, Mister Car Wash, Spare Time, Track Holdings,
and The Nest Schools. Our 1,545 leased properties are operated by our 323
tenants. The following table details information about our tenants and the
related concepts as of March 31, 2022 (dollars in thousands):

                                                                                                                                                     % of
                                                                                                      Number of            Annualized             Annualized
Tenant(1)                                                           Concept                          Properties             Base Rent              Base Rent
Equipmentshare.com Inc.                              EquipmentShare                                        28             $    8,525                       3.3  %
Captain D's, LLC                                     Captain D's                                           75                  5,269                       2.0  %
Whitewater Holding Company, LLC                      WhiteWater Express Car Wash                           16                  4,892                       1.9  %
Cadence Education, LLC                               Various                                               23                  4,884                       1.9  %
MDSFest, Inc.                                        Festival Foods                                         5                  4,644                       1.8  %
Mammoth Holdings, LLC.                               Various                                               17                  4,485                       1.8  %
Car Wash Partners, Inc.                              Mister Car Wash                                       13                  4,443                       1.7  %
Bowl New England, Inc.                               Spare Time                                             6                  4,367                       1.7  %
The Track Holdings, LLC                              Various                                                9                  4,142                       1.6  %
The Nest Schools, Inc.                               The Nest Schools                                      17                  3,952                       1.5  %
Top 10 Subtotal                                                                                           209                 49,603                      19.2  %
Other                                                                                                   1,336                208,260                      80.8  %
Total                                                                                                   1,545             $  257,863                     100.0  %

_____________________________________

(1)Represents tenant or guarantor.


As of March 31, 2022, our five largest tenants, who contributed 10.9% of our
annualized base rent, had a rent coverage ratio of 6.1x and our ten largest
tenants, who contributed 19.2% of our annualized base rent, had a rent coverage
ratio of 4.6x.

As of March 31, 2022, 94.6% of our leases (based on annualized base rent)
were triple-net, and the tenant is typically responsible for all improvements
and is contractually obligated to pay all operating expenses, such as
maintenance, insurance, utility and tax expense, related to the leased property.
Due to the triple-net structure of our leases, we do not expect to incur
significant capital expenditures relating to our triple-net leased properties,
and the potential impact of inflation on our operating expenses is reduced.

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Diversification by concept

Our tenants operate their businesses through 461 concepts. The following table details these concepts in March 31, 2022 (dollars in thousands):


                                                                                Annualized                % of
                                                                                   Base                Annualized                Number of                Building
Concept                                              Type of Business              Rent                 Base Rent               Properties               (Sq. Ft.)
EquipmentShare                                     Service                     $    8,525                       3.3  %                28                   531,031
Captain D's                                        Service                          6,494                       2.5  %                88                   228,470
Applebee's                                         Service                          5,028                       1.9  %                34                   168,186
WhiteWater Express Car Wash                        Service                          4,892                       1.9  %                16                    77,746
Festival Foods                                     Retail                           4,644                       1.8  %                 5                   379,640
Mister Car Wash                                    Service                          4,443                       1.7  %                13                    54,621
Spare Time                                         Experience                       4,367                       1.7  %                 6                   272,979
Pizza Hut                                          Service                          4,183                       1.6  %                75                   202,564
The Nest Schools                                   Service                          3,952                       1.5  %                17                   217,282
Circle K                                           Service                          3,875                       1.5  %                35                   130,975
Top 10 Subtotal                                                                    50,403                      19.4  %               317                 2,263,494
Other                                                                             207,460                      80.6  %             1,228                11,997,294
Total                                                                          $  257,863                     100.0  %             1,545                14,260,788


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Diversification by industry


Our tenants' business concepts are diversified across various industries. The
following table summarizes those industries as of March 31, 2022 (dollars in
thousands):

                                                             Annualized                % of
                                         Type of                Base                Annualized              Number of               Building               Rent Per
Tenant Industry                         Business                Rent                Base Rent               Properties              (Sq. Ft.)             Sq. Ft. (1)
Early Childhood Education            Service               $    36,232                     14.1  %              164                1,740,517            $      20.69
Quick Service                        Service                    33,210                     12.9  %              415                1,142,206                   29.38
Car Washes                           Service                    29,530                     11.5  %              100                  528,299                   55.90
Medical / Dental                     Service                    29,512                     11.4  %              176                1,212,184                   24.38
Automotive Service                   Service                    22,619                      8.8  %              173                1,109,172                   20.24
Casual Dining                        Service                    15,792                      6.1  %               99                  574,989                   26.81
Convenience Stores                   Service                    15,045                      5.8  %              134                  524,676                   28.82
Equipment Rental and Sales           Service                    11,109                      4.3  %               45                  812,666                   13.20
Family Dining                        Service                     5,700                      2.2  %               37                  244,706                   23.29
Pet Care Services                    Service                     5,405                      2.1  %               48                  395,905                   14.99
Other Services                       Service                     5,312                      2.1  %               24                  292,129                   18.81
Service Subtotal                                               209,466                     81.3  %            1,415                8,577,449                   24.48
Entertainment                        Experience                 14,337                      5.6  %               33                  900,786                   16.86
Health and Fitness                   Experience                 11,401                      4.4  %               28                1,045,772                   10.19
Movie Theatres                       Experience                  4,175                      1.6  %                6                  293,206                   14.24
Experience Subtotal                                             29,913                     11.6  %               67                2,239,764                   13.34
Grocery                              Retail                      9,610                      3.7  %               28                1,341,200                    7.17
Home Furnishings                     Retail                      2,048                      0.8  %                4                  217,339                    9.42
Retail Subtotal                                                 11,658                      4.5  %               32                1,558,539                    7.48
Building Materials                   Industrial                  3,801                      1.5  %               23                1,257,017                    3.02
Other Industrial                     Industrial            $     3,025                      1.1  %                8                  628,019                    4.82
Industrial Subtotal                                              6,826                      2.6  %               31                1,885,036                    3.62
Total/Weighted Average                                         257,863                    100.0  %            1,545               14,260,788            $      18.10

_____________________________________

(1)Excluding buildings without annualized base rent and buildings under construction.

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Geographical diversification

Our 1,545 properties are spread across 46 states. The following table details the geographic locations of our properties at March 31, 2022
(dollars in thousands):

                     Annualized      % of Annualized       Number of           Building
State                Base Rent          Base Rent          Properties         (Sq. Ft.)
Texas               $   33,903                13.1  %         180            1,737,171
Ohio                    20,268                 7.9  %         155            1,151,496
Georgia                 17,697                 6.9  %         111              645,396
Florida                 17,614                 6.8  %          72              711,975
Wisconsin               12,512                 4.9  %          55              761,929
North Carolina          10,332                 4.0  %          54              624,883
Michigan                 8,438                 3.3  %          53              910,268
Arkansas                 8,169                 3.2  %          58              463,873
Arizona                  7,825                 3.0  %          45              388,342
Missouri                 7,798                 3.0  %          49              678,452
Alabama                  7,436                 2.9  %          50              458,898
Tennessee                6,939                 2.7  %          45              243,105
Minnesota                6,363                 2.5  %          36              467,895
Oklahoma                 6,349                 2.5  %          42              402,981
Massachusetts            6,245                 2.4  %          29              406,159
Illinois                 6,202                 2.4  %          37              261,414
Colorado                 5,412                 2.1  %          26              236,068
Pennsylvania             5,347                 2.1  %          32              320,634
South Carolina           4,856                 1.9  %          32              337,299
New York                 4,725                 1.8  %          39              185,923
Mississippi              4,717                 1.7  %          41              271,991
Iowa                     4,062                 1.6  %          25              206,904
New Jersey               4,013                 1.6  %          19              121,198
Kentucky                 3,991                 1.5  %          36              193,546
California               3,351                 1.3  %          19              180,090
New Mexico               3,307                 1.3  %          22              130,210
Connecticut              3,127                 1.2  %          13              217,984
Kansas                   3,103                 1.2  %          21              154,069
Indiana                  2,886                 1.1  %          24              190,863
Nevada                   2,409                 0.9  %           8               80,358
South Dakota             2,384                 0.9  %           9              124,912
Virginia                 2,279                 0.9  %          11              198,245
Maryland                 2,245                 0.9  %           9               79,028
Louisiana                2,106                 0.8  %          12               89,033
West Virginia            1,864                 0.7  %          29               88,802
Washington               1,673                 0.6  %          11               87,243
Oregon                   1,258                 0.5  %           8              127,673
Utah                       933                 0.4  %           2               67,659
New Hampshire              892                 0.3  %           8               99,384
Nebraska                   863                 0.3  %           9               32,948
Maine                      500                 0.2  %           1               32,115
Wyoming                    442                 0.2  %           2               14,001
Idaho                      403                 0.2  %           1               35,433
Alaska                     246                 0.1  %           2                6,630
Vermont                    217                 0.1  %           2               30,508
Rhode Island               164                 0.1  %           1                5,800
Total               $  257,863               100.0  %       1,545           14,260,788


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Expiration of leases


As of March 31, 2022, the weighted average remaining term of our leases was 13.9
years (based on annualized base rent), with only 4.9% of our annualized base
rent attributable to leases expiring prior to January 1, 2027. The following
table sets forth our lease expirations for leases in place as of March 31, 2022
(dollars in thousands):

                                                                                                                                            Weighted
                                                         Annualized              % of Annualized                Number of                 Average Rent
Lease Expiration Year (1)                                 Base Rent                 Base Rent                   Properties             Coverage Ratio (2)
2022                                                    $      492                             0.2  %                  5                                3.0x
2023                                                         1,490                             0.6  %                 16                                2.9x
2024                                                         4,815                             1.9  %                 47                                5.4x
2025                                                         2,346                             0.9  %                 20                                2.1x
2026                                                         3,303                             1.3  %                 22                                2.3x
2027                                                         7,762                             3.0  %                 83                                2.6x
2028                                                         4,088                             1.6  %                 13                                1.7x
2029                                                         5,703                             2.2  %                 78                                4.3x
2030                                                         4,388                             1.7  %                 48                                6.7x
2031                                                        14,886                             5.8  %                 88                                2.9x
2032                                                         9,310                             3.6  %                 38                                5.4x
2033                                                         8,249                             3.2  %                 27                                3.4x
2034                                                        26,801                            10.4  %                207                                5.9x
2035                                                        14,391                             5.6  %                 98                                3.2x
2036                                                        39,762                            15.4  %                181                                3.5x
2037                                                        12,939                             5.0  %                 76                                9.3x
2038                                                        13,148                             5.1  %                 81                                2.2x
2039                                                        21,446                             8.3  %                111                                3.8x
2040                                                        32,403                            12.6  %                161                                2.8x
2041                                                        20,972                             8.1  %                112                                2.5x
Thereafter                                                   9,169                             3.5  %                 33                                2.6x
Total/Weighted Average                                  $  257,863                           100.0  %              1,545                                3.8x

_____________________________________

(1)Year of expiration of contracts in place at March 31, 2022, excluding any unexercised tenant renewal option periods. (2)Weighted by annualized base rent.

Coverage of rents at the unit level


Generally, we seek to acquire investments with healthy rent coverage ratios, and
as of March 31, 2022, the weighted average rent coverage ratio of our portfolio
was 3.8x. Our portfolio's unit-level rent coverage ratios (by annualized base
rent and excluding leases that do not report unit-level financial information)
as of March 31, 2022 are displayed below:

Unit Level Coverage Ratio         % of Total
? 2.00x                               73.8  %
1.50x to 1.99x                        10.2  %
1.00x to 1.49x                         6.7  %
< 1.00x                                8.0  %
Not reported                           1.3  %
                                     100.0  %


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Credit ratings


Tenant financial distress is typically caused by consistently poor or
deteriorating operating performance, near-term liquidity issues or unexpected
liabilities. To assess the probability of tenant insolvency, we utilize Moody's
Analytics RiskCalc, which is a model for predicting private company defaults
based on Moody's Analytics Credit Research Database, which incorporates both
market and company-specific risk factors. The following table illustrates the
portions of our annualized base rent as of March 31, 2022 attributable to leases
with tenants having specified implied credit ratings based on their Moody's
RiskCalc scores:

Credit Rating          NR        < 1.00x      1.00 to 1.49x      1.50 to 1.99x      ? 2.00x
CCC+                    -  %       0.8  %               -  %               -  %       0.4  %
B-                      -  %       1.0  %             0.6  %             0.1  %       2.0  %
B                       -  %       2.4  %             0.3  %             0.1  %       1.1  %
B+                    0.1  %       0.4  %             0.6  %             1.6  %       2.1  %
BB-                     -  %       0.9  %             0.3  %             2.1  %       9.4  %
BB                      -  %       0.9  %             0.7  %             0.5  %      12.3  %
BB+                     -  %       1.0  %             0.7  %             1.2  %       9.2  %
BBB-                    -  %       0.2  %             2.0  %             0.1  %      10.6  %
BBB                     -  %       0.4  %             0.8  %             2.4  %      15.4  %
BBB+                    -  %       0.2  %             0.2  %             1.5  %       3.6  %
A-                      -  %         -  %             0.3  %               -  %       4.8  %
A                       -  %         -  %               -  %               -  %       1.0  %
A+                      -  %         -  %               -  %               -  %       0.8  %
AA-                     -  %         -  %               -  %               -  %         -  %

_____________________________________

NR Not reported

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Operating results

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

Comparison of the three months ended March 31, 2022 and 2021


                                                       Three months ended March 31,
(dollar amounts in thousands)                             2022              2021             Change                %

Income:

Rental revenue                                        $  66,112          $ 45,432          $ 20,680                 45.5  %
Interest on loans and direct financing lease
receivables                                               3,822             3,105               717                 23.1  %
Other revenue, net                                          187                15               172               1146.7  %
Total revenues                                           70,121            48,552            21,569

Expenses:
General and administrative                                8,063             6,431             1,632                 25.4  %
Property expenses                                         1,009             1,414              (405)               (28.6) %
Depreciation and amortization                            20,313            15,646             4,667                 29.8  %
Provision for impairment of real estate                   3,935             5,722            (1,787)               (31.2) %
Change in provision for loan losses                          60                38                22                 57.9  %
Total expenses                                           33,380            29,251             4,129
Other operating income:
Gain on dispositions of real estate, net                  1,658             3,788            (2,130)               (56.2) %
Income from operations                                   38,399            23,089            15,310
Other (expense)/income:
Loss on debt extinguishment                              (2,138)                -            (2,138)               100.0  %
Interest expense                                         (9,160)           (7,678)           (1,482)                19.3  %
Interest income                                              18                20                (2)               (10.0) %
Income before income tax expense                         27,119            15,431            11,688
Income tax expense                                          301                56               245                437.5  %
Net income                                               26,818            15,375            11,443
Net income attributable to non-controlling
interests                                                  (119)              (80)               39                 48.8  %
Net income attributable to stockholders               $  26,699          $ 15,295          $ 11,404


Revenues:

Rental revenue. Rental revenue increased by $20.7 million for the three months
ended March 31, 2022 as compared to the three months ended March 31, 2021. The
increase in rental revenue was driven primarily by the growth in our real estate
investment portfolio. Our real estate investment portfolio grew from 1,240
rental properties, representing $2.5 billion in net investments in real estate,
as of March 31, 2021 to 1,363 rental properties, representing $3.3 billion in
net investments in real estate, as of March 31, 2022. Our real estate
investments were acquired throughout the periods presented and were not all
owned by us for the entirety of the applicable periods; accordingly, a
significant portion of the increase in rental revenue between periods is related
to recognizing revenue in 2022 from acquisitions that were made during 2021 and
early 2022. Another component of the increase in rental revenues between periods
relates to rent escalations recognized on our leases.

Interest on loans and direct financing lease receivables. Interest on loans and
direct financing lease receivables increased by $0.7 million for the three
months ended March 31, 2022 as compared to the three months ended
March 31, 2021, primarily due to the net growth of our mortgage loans receivable
portfolio during 2021 and continuing into 2022, which led to a higher average
daily balance of loans receivable outstanding during the three months ended
March 31, 2022.

Other income. Other income increased $0.2 million in the three months ended March 31, 2022 compared to the three months ended March 31, 2021mainly due to the collection of loan prepayment fees and management fees during the three months ended March 31, 2022.

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Expenses:


General and administrative. General and administrative expense increased by $1.6
million for the three months ended March 31, 2022 as compared to the three
months ended March 31, 2021. The increase was primarily related to an increase
in non-cash share-based compensation of $1.2 million, salary expense and
professional fees during the three months ended March 31, 2022.

Property expenses. Property expenses decreased by $0.4 million for the three
months ended March 31, 2022 as compared to the three months ended
March 31, 2021. The decrease in property expenses was primarily due to decreased
insurance expenses, property taxes and property-related operational costs during
the three months ended March 31, 2022 related to vacant properties and tenants
accounted for on a non-accrual basis.

Depreciation and amortization. Depreciation and amortization expense increased
by $4.7 million during the three months ended March 31, 2022 as compared to the
three months ended March 31, 2021. Depreciation and amortization expense
increased in proportion to the increase in the size of our real estate portfolio
during the three months ended March 31, 2022.

Provision for impairment of real estate. Impairment charges on real estate
investments were $3.9 million and $5.7 million for the three months ended
March 31, 2022 and 2021, respectively. During the three months ended
March 31, 2022 and 2021, we recorded a provision for impairment on four and nine
of our real estate investments, respectively. We strategically seek to identify
non-performing properties that we may re-lease or dispose of in an effort to
improve our returns and manage risk exposure. An increase in vacancy associated
with our disposition or re-leasing strategies may trigger impairment charges
when the expected future cash flows from the properties from sale or re-lease
are less than their net book value.

Change in provision for loan losses. Provision for loan losses increased by
approximately $22,000 for the three months ended March 31, 2022 as compared to
the three months ended March 31, 2021. Under ASC 326, we are required to
re-evaluate the expected loss on our portfolio of loans and direct financing
lease receivables at each balance sheet date. Changes in our provision for loan
losses are driven by revisions to global and loan-specific assumptions in our
loan loss model and by changes in the size of our loan and direct financing
lease portfolio.

Other exploitation products:


Gain on dispositions of real estate, net. Gain on dispositions of real estate,
net, decreased by $2.1 million for the three months ended March 31, 2022 as
compared to the three months ended March 31, 2021. We disposed of six and 16
real estate properties during the three months ended March 31, 2022 and 2021,
respectively.

Other (expense)/income:

Loss on extinguishment of debt. In the three months ended March 31, 2022we recorded a $2.1 million the loss on extinguishment of debt due to the write-off of deferred financing fees and the payment of fees in connection with the modification of the term loans and the revolving credit facility.

Interest charges. Interest expense increased by $1.5 million in the three months ended March 31, 2022 compared to the three months ended
March 31, 2021. The increase in interest expense is primarily due to an increase in our outstanding debt in the three months ended
March 31, 2022 compared to the three months ended March 31, 2021.


Interest income. Interest income decreased by approximately $2,000 for the three
months ended March 31, 2022 as compared to the three months ended
March 31, 2021. The decrease in interest income was primarily due to lower
average daily cash balances in our interest-bearing bank accounts, partially
offset by higher interest rates during the three months ended March 31, 2022

Income tax expense. Income tax expense increased by $0.2 million for the three
months ended March 31, 2022 as compared to the three months ended
March 31, 2021. This increase was primarily due to the accrual of income taxes
for a transaction consummated through our taxable REIT subsidiary. We are
organized and operate as a REIT and are generally not subject to U.S. federal
corporate income taxes on our REIT taxable income that is currently distributed
to our stockholders. However, the Operating Partnership is subject to taxation
in certain state and local jurisdictions that impose income taxes on a
partnership.

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Non-GAAP Financial Measures


Our reported results are presented in accordance with GAAP. We also disclose the
following non-GAAP financial measures: funds from operations ("FFO"), core funds
from operations ("Core FFO"), adjusted funds from operations ("AFFO"), earnings
before interest, taxes, depreciation and amortization ("EBITDA"), EBITDA further
adjusted to exclude gains (or losses) on sales of depreciable property and real
estate impairment losses ("EBITDAre"), adjusted EBITDAre, annualized adjusted
EBITDAre, net debt, net operating income ("NOI") and cash NOI ("Cash NOI"). We
believe these non-GAAP financial measures are industry measures used by analysts
and investors to compare the operating performance of REITs.

We compute FFO in accordance with the definition adopted by the Board of
Governors of the National Association of Real Estate Investment Trusts
("NAREIT"). NAREIT defines FFO as GAAP net income or loss adjusted to exclude
extraordinary items (as defined by GAAP), net gain or loss from sales of
depreciable real estate assets, impairment write-downs associated with
depreciable real estate assets and real estate-related depreciation and
amortization (excluding amortization of deferred financing costs and
depreciation of non-real estate assets), including the pro rata share of such
adjustments of unconsolidated subsidiaries. FFO is used by management, and may
be useful to investors and analysts, to facilitate meaningful comparisons of
operating performance between periods and among our peers primarily because it
excludes the effect of real estate depreciation and amortization and net gains
and losses on sales (which are dependent on historical costs and implicitly
assume that the value of real estate diminishes predictably over time, rather
than fluctuating based on existing market conditions).

We compute Core FFO by adjusting FFO, as defined by NAREIT, to exclude certain
GAAP income and expense amounts that we believe are infrequent and unusual in
nature and/or not related to our core real estate operations. Exclusion of these
items from similar FFO-type metrics is common within the equity REIT industry,
and management believes that presentation of Core FFO provides investors with a
metric to assist in their evaluation of our operating performance across
multiple periods and in comparison to the operating performance of our peers,
because it removes the effect of unusual items that are not expected to impact
our operating performance on an ongoing basis. Core FFO is used by management in
evaluating the performance of our core business operations. Items included in
calculating FFO that may be excluded in calculating Core FFO include certain
transaction related gains, losses, income or expense or other non-core amounts
as they occur.

To derive AFFO, we modify our computation of Core FFO to include other
adjustments to GAAP net income related to certain items that we believe are not
indicative of our operating performance, including straight-line rental revenue,
non-cash interest expense, non-cash compensation expense, other amortization and
non-cash charges, capitalized interest expense and transaction costs. Such items
may cause short-term fluctuations in net income but have no impact on operating
cash flows or long-term operating performance. We believe that AFFO is an
additional useful supplemental measure for investors to consider when assessing
our operating performance without the distortions created by non-cash items and
certain other revenues and expenses.

FFO, Core FFO and AFFO do not include all items of revenue and expense included
in net income, they do not represent cash generated from operating activities
and they are not necessarily indicative of cash available to fund cash
requirements; accordingly, they should not be considered alternatives to net
income as a performance measure or cash flows from operations as a liquidity
measure and should be considered in addition to, and not in lieu of, GAAP
financial measures. Additionally, our computation of FFO, Core FFO and AFFO may
differ from the methodology for calculating these metrics used by other equity
REITs and, therefore, may not be comparable to similarly titled measures
reported by other equity REITs.

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The following table reconciles net income (which is the most comparable GAAP measure) with FFO, Basic FFO and AFFO attributable to shareholders and non-controlling interests:


                                                                          Three months ended March 31,
(in thousands)                                                              2022                  2021
Net income                                                           $        26,818          $   15,375
Depreciation and amortization of real estate                                  20,287              15,621
Provision for impairment of real estate                                        3,935               5,722
Gain on dispositions of real estate, net                                      (1,658)             (3,788)
FFO attributable to stockholders and non-controlling interests                49,382              32,930
Other non-recurring expenses (1)                                               2,138                   -

Basic FFO attributable to shareholders and non-controlling interests

                                                                     51,520              32,930

Adjustments:

Straight-line rental revenue, net                                             (6,265)             (3,644)
Non-cash interest                                                                661                 479
Non-cash compensation expense                                                  2,836               1,595
Other amortization expense                                                       194               1,105
Other non-cash charges                                                            56                  36
Capitalized interest expense                                                     (66)                (20)

AFFO attributable to shareholders and non-controlling interests

                                                            $      

48,936 $32,481

_____________________________________

(1)Includes our $2.1 million loss on extinguishment of debt during the three months ended March 31, 2022.


We compute EBITDA as earnings before interest, income taxes and depreciation and
amortization. In 2017, NAREIT issued a white paper recommending that companies
that report EBITDA also report EBITDAre. We compute EBITDAre in accordance with
the definition adopted by NAREIT. NAREIT defines EBITDAre as EBITDA (as defined
above) excluding gains (or losses) from the sales of depreciable property and
real estate impairment losses. We present EBITDA and EBITDAre as they are
measures commonly used in our industry. We believe that these measures are
useful to investors and analysts because they provide supplemental information
concerning our operating performance, exclusive of certain non-cash items and
other costs. We use EBITDA and EBITDAre as measures of our operating performance
and not as measures of liquidity.

EBITDA and EBITDAre do not include all items of revenue and expense included in
net income, they do not represent cash generated from operating activities and
they are not necessarily indicative of cash available to fund cash requirements;
accordingly, they should not be considered alternatives to net income as a
performance measure or cash flows from operations as a liquidity measure and
should be considered in addition to, and not in lieu of, GAAP financial
measures. Additionally, our computation of EBITDA and EBITDAre may differ from
the methodology for calculating these metrics used by other equity REITs and,
therefore, may not be comparable to similarly titled measures reported by other
equity REITs.

The following table reconciles net income (which is the most comparable GAAP
measure) to EBITDA and EBITDAre attributable to stockholders and non-controlling
interests:

                                                                        Three months ended March 31,
(in thousands)                                                            2022                   2021

Net income                                                         $        26,818          $    15,375
Depreciation and amortization                                               20,313               15,646
Interest expense                                                             9,160                7,678
Interest income                                                                (18)                 (20)
Income tax expense                                                             301                   56

EBITDA attributable to shareholders and non-controlling interests

                                                                   56,574               38,735
Provision for impairment of real estate                                      3,935                5,722
Gain on dispositions of real estate, net                                    (1,658)              (3,788)
EBITDAre attributable to stockholders and non-controlling
interests                                                          $        58,851          $    40,669


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We further adjust EBITDAre for the most recently completed quarter i) based on
an estimate calculated as if all re-leasing, investment and disposition activity
that took place during the quarter had been made on the first day of the
quarter, ii) to exclude certain GAAP income and expense amounts that we believe
are infrequent and unusual in nature and iii) to eliminate the impact of lease
termination or loan prepayment fees and contingent rental revenue from certain
of our tenants, which is subject to sales thresholds specified in the applicable
leases ("Adjusted EBITDAre"). We then annualize quarterly Adjusted EBITDAre by
multiplying it by four ("Annualized Adjusted EBITDAre"), which we believe
provides a meaningful estimate of our current run rate for all of our
investments as of the end of the most recently completed quarter. You should not
unduly rely on this measure, as it is based on assumptions and estimates that
may prove to be inaccurate. Our actual reported EBITDAre for future periods may
be significantly less than our current Annualized Adjusted EBITDAre.

The following table reconciles net income (which is the most comparable GAAP measure) to annualized adjusted EBITDA attributable to shareholders and non-controlling interests for the three months ended March 31, 2022:


                                                                                      Three months ended
(in thousands)                                                                          March 31, 2022
Net income                                                                           $          26,818
Depreciation and amortization                                                                   20,313
Interest expense                                                                                 9,160
Interest income                                                                                    (18)
Income tax expense                                                                                 301

EBITDA attributable to shareholders and non-controlling interests

                     56,574
Provision for impairment of real estate                                                          3,935
Gain on dispositions of real estate, net                                                        (1,658)

EBITDA is attributable to shareholders and non-controlling interests

                     58,851

Adjustment for current quarter reletting, acquisition and disposal activities (1)

                                                                                     1,781

Adjustment to exclude other non-strategic or non-recurring activities (2)

                      3,003

Adjustment to exclude termination/prepayment fees and certain rent percentages (3)

                                                                                                  -

Adjusted EBITDA attributable to shareholders and non-controlling interests $63,635


Annualized Adjusted EBITDAre attributable to stockholders and non-controlling
interests                                                                            $         254,540

_____________________________________

(1)Adjustment assumes all re-leasing activity, investments in and dispositions
of real estate and loan repayments made during the three months ended
March 31, 2022 had occurred on January 1, 2022.
(2)Adjustment is made to exclude non-core expenses added back to compute Core
FFO, our provision for loan losses and to eliminate the impact of seasonal
fluctuation in certain non-cash compensation expense recorded in the period.
(3)Adjustment excludes contingent rent (based on a percentage of the tenant's
gross sales at the leased property) where payment is subject to exceeding a
sales threshold specified in the lease and lease termination or loan prepayment
fees.

We calculate our net debt as our gross debt (defined as total debt plus net
deferred financing costs on our secured borrowings) less cash and cash
equivalents and restricted cash available for future investment. We believe
excluding cash and cash equivalents and restricted cash available for future
investment from gross debt, all of which could be used to repay debt, provides
an estimate of the net contractual amount of borrowed capital to be repaid,
which we believe is a beneficial disclosure to investors and analysts.

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The following table reconciles total debt (which is the most comparable GAAP measure) to net debt:

                                                                         March 31,           December 31,
(in thousands)                                                              2022                 2021

Unsecured term loans, net of deferred financing costs                  $   628,055          $    626,983
Revolving credit facility                                                  147,000               144,000
Senior unsecured notes, net                                                394,864               394,723
Total debt                                                               1,169,919             1,165,706
Deferred financing costs and original issue discount, net                    7,081                 8,294
Gross debt                                                               1,177,000             1,174,000
Cash and cash equivalents                                                  (14,255)              (59,758)
Restricted cash available for future investment                                  -                     -
Net debt                                                               $ 1,162,745          $  1,114,242


We compute NOI as total revenues less property expenses. NOI excludes all other
items of expense and income included in the financial statements in calculating
net income or loss, in accordance with GAAP. Cash NOI further excludes non-cash
items included in total revenues and property expenses, such as straight-line
rental revenue and other amortization and non-cash charges. We believe NOI and
Cash NOI provide useful and relevant information because they reflect only those
revenue and expense items that are incurred at the property level and present
such items on an unlevered basis.

NOI and Cash NOI are not measures of financial performance under GAAP. You
should not consider our NOI and Cash NOI as alternatives to net income or cash
flows from operating activities determined in accordance with GAAP.
Additionally, our computation of NOI and Cash NOI may differ from the
methodology for calculating these metrics used by other equity REITs, and,
therefore, may not be comparable to similarly titled measures reported by other
equity REITs.

The following table reconciles net income (which is the most comparable GAAP
measure) to NOI and Cash NOI attributable to stockholders and non-controlling
interests:

                                                                          Three months ended March 31,
(in thousands)                                                              2022                   2021
Net income                                                           $        26,818          $    15,375
General and administrative expense                                             8,063                6,431
Depreciation and amortization                                                 20,313               15,646
Provision for impairment of real estate                                        3,935                5,722
Change in provision for loan losses                                               60                   38
Gain on dispositions of real estate, net                                      (1,658)              (3,788)
Loss on debt extinguishment                                                    2,138                    -
Interest expense                                                               9,160                7,678
Interest income                                                                  (18)                 (20)
Income tax expense                                                               301                   56
NOI attributable to stockholders and non-controlling interests                69,112               47,138
Straight-line rental revenue, net                                             (6,265)              (3,644)
Other amortization and non-cash charges                                          194                1,105

Cash NOI attributable to shareholders and non-controlling interests

                                                            $      

63,041 $44,599

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