Broadstone Net Lease, Inc.

Hello, and welcome to Broadstone Net Lease's fourth quarter 2020 earnings conference call. My name is Carrie, and I will be your operator today. Please note that today's call is being recorded. I will now turn the call over to Kevin Fennell, Senior Vice President of Capital Markets at Broadstone. Please go ahead.

Thank you for joining us today for Broadstone Net Lease's fourth quarter 2020 earnings call. On today's call, you'll hear from our CEO, Chris Arnicki, and our CFO, Ryan Albano. Before we begin, we want to remind everyone that the following presentation contains forward-looking statements, which are subject to risks and uncertainties, including but not limited to those related to the ongoing COVID-19 pandemic. Should one or more of these risks or uncertainties materialize, actual results may differ materially. We caution you not to place undue reliance on these forward-looking statements and refer you to our SEC filings, including our Form 10-K for the year ended December 31, 2020, for a more detailed discussion of the risk factors that may cause such differences. Any forward-looking statements provided during this conference call are only made as of the date of this call. I will now turn the call over to our CEO, Chris Arnicki.

Thank you, Kevin, and welcome to everyone joining our Q4 2020 earnings call. I hope that 2021 is off to a safe and healthy start for everyone. It's hard to believe that we're almost six months past the B&O IPO closing. leading up to, and then during the roadshow, we talked with analysts and investors about what they should expect from BNL in the quarters after the IPO. First and foremost, the team communicated a continued intense focus on portfolio management and building on our already strong collections results from the first three quarters of 2020, while also maintaining our high percentage of leased assets. Next, we communicated an intention to continue executing on our diversified net lease investment strategy with an overweighted focus on industrial, healthcare, select retail, and QSR properties. Finally, we outlined several capital markets initiatives, including achieving a second credit rating and gaining access to the investment-grade bond market as an important source of future long-term debt capital. The BNL team tackled all of these objectives in Q4 and into 2021, and I'm very excited to provide an update on the substantial progress we have made since our last call. As we ended 2020, our portfolio continued to perform well, and our collection results were among the best in the net lease space, coming in at 99% for the fourth quarter. With broad vaccination efforts underway, near daily updates regarding incremental vaccine supply and distribution, and reducing case counts across most of the country, we are encouraged that there finally appears to be light at the end of the tunnel. Our collections trends have only continued to strengthen into 2021, and Ryan will provide an update on January and February's results in a moment. Since the IPO in late September 2020, our team has been acutely focused on deploying the capital we raised into accretive acquisitions. Our investments during the fourth quarter were very complimentary to Broadstone's existing portfolio in terms of the mix of asset types and sourcing channels, as well as overall property and lease characteristics. We closed six transactions comprising 19 properties for a total investment of $100.3 million. The weighted average first year cash cap rate was 6.9% for the quarter's investments. The leases include 1.9% weighted average rent escalations and a 14.4 year weighted average remaining lease term, complementing our existing portfolio's long lease duration and best in class annual rent escalations. Acquisitions were diversified across our core property types, though heavily skewed towards industrial, at 77% of the total. The transactions were split evenly between sale leasebacks and assumptions, and we were successful in sourcing opportunities from multiple channels, including add-on acquisitions with existing tenants and repeat transactions with brokers and real estate developers. I want to briefly highlight two of the transactions. Representing the largest acquisition in the quarter, We purchased a newly completed 644,000 square foot warehouse and distribution facility, tenanted by a leading contract brewer outside of Minneapolis, Minnesota, for approximately $41 million. The property has a remaining lease term of approximately 11 years and 2% annual rent escalations. The company manufactures and distributes beverages for itself and third parties, and the facility is strategically located and key to the tenant's operations as it serves as the distribution center for its nearby production and bottling facility. We also added seven quick service restaurants located across three states to our existing master lease with Jack's Family Restaurants, our second largest tenant exposure, for approximately $13.2 million. The master lease provides for 2% annual rent increases, and the remaining term of the master lease was increased to approximately 16 years in connection with the acquisition of these new properties. USR space broadly demonstrated resiliency during the pandemic and Jack specifically continued to perform well and grow its footprint. We also made incremental investments in our existing portfolio of properties. In the fourth quarter, we invested $3 million with two tenants, which will generate a 7.5% weighted average return. In total during 2020, we invested $10.3 million in our existing portfolio. on which we will generate a 7.4% weighted average return over the remaining lease term. The timing and size of these investments can be difficult to predict, but we routinely engage our tenant base to source opportunities like these that create incremental value for both the tenant and our assets. During the fourth quarter, we sold six properties for approximately $24 million at a weighted average cap rate of 9.5% on tenanted properties representing a gain of approximately $1 million over original purchase price. These sales were generally of non-core assets, including several dental clinics that we have been proactively reducing our exposure to over the past several years. For the year, we sold 24 properties for net proceeds of 77.5 million at a weighted average cap rate of 7.7% on tentative properties, representing a gain of $3.3 million over original purchase price. As of December 31st, our portfolio includes 640 properties across 41 states and one property in Canada. The portfolio was 99.2% leased and had a weighted average remaining lease term of 10.7 years with 2.1% annual rent escalations. Occupancy declined approximately 60 basis points from Q3 2020. This change was primarily driven by short-term leases at two of our former art van sites expiring during the quarter. We had just eight vacant assets reported at year end, three of which have now been retended with leases commencing in 2021, including the largest former Artvan site. Our forward lease maturities are also highly manageable, representing just 0.4% of ABR in 2021 and a total of 2.9% of ABR through 2023. As part of our ongoing property management process, we evaluate lease maturities and potential expirations on a five-year forward-looking basis and will provide relevant updates as they occur. Finally, during the quarter, our number one tenant exposure, Red Lobster, refinanced its large near-term debt maturity, which should naturally provide the company some additional financial flexibility as it continues to navigate the pandemic and makes progress returning to normal operations. Our balance sheet remains strong and provides us with significant financial flexibility as we continue to deploy the capital we raised in our initial public offering. The strength of our balance sheet and portfolio outperformance was recently substantiated by S&P as we received an initial credit rating of triple B with a stable outlook in January. This credit rating comes with immediate benefits in the form of reduced interest costs on the majority of our existing debt, primarily our bank term notes and revolving line of credit. A second investment grade credit rating also further diversifies our funding sources by providing us with access to the investment grade bond market for future issuance. While we typically experience lighter acquisition volume in the first quarter, following a strong sequence of closing activity at year end, we are seeing strong flows of potential investment opportunities take shape as we cross the midpoint of the quarter. The combination of the pandemic's creation of have and have not asset types with the continuation of near historically low interest rates has certainly enhanced competition. but we continue to source sufficient quality opportunities to support our near-term growth objectives. Brian will speak more about our formal 2021 guidance in just a moment, but we expect to complete between $450 and $550 million of new acquisitions during the year. With ample liquidity and expanded access to capital, our team is highly active in sourcing and evaluating investment opportunities. We currently have an active opportunity set north of $900 million. As I've said before, Our diversified strategy and experienced team ensures we have the flexibility to pursue growth where we find attractive risk-adjusted returns while also limiting the potential negative effects of disruption occurring within any single sector or with any single tenant. It also affords us the ability to be highly selective within each of our property types. We are reviewing significant levels of opportunities within each property type and naturally instituting greater selectivity in sectors experiencing higher degrees of disruption from the pandemic. I'm very proud of what our management team has accomplished in our first full quarter as a publicly traded company, and I'm excited by our team's energy and focus on the opportunities we have ahead of us. The current market backdrop requires us to be nimble and sometimes patient, and we remain focused and committed to generating attractive risk-adjusted returns while creating long-term value for our shareholders. I'd now like to turn the call over to Ryan to go over our results in greater detail.