Broadstone Net Lease, Inc.

Hello and welcome to Broadstone Net Lease's third quarter 2021 earnings conference call. My name is Alex and I will be your operator today. Please note that today's call is being recorded. I will now turn the call over to Mike Caruso, Senior Vice President of Corporate Finance and Investor Relations at Broadstone. Please go ahead.

Thank you, Operator, and thank you everyone today for Broadstone Net Lease's third quarter 2021 earnings call. On today's call, you will hear from our Chief Executive Officer, Chris Sarnecki, our Chief Financial Officer, Ryan Albano, and John Marana, our Chief Operating Officer, who will participate in Q&A. Before we begin, I would like to remind everyone that the following presentation contains forward-looking statements, which are subject to risks and uncertainties that can cause actual results to differ materially due to a variety of factors. 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 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 Chief Executive Officer, Chris Zarnacki.

Thank you, Mike, and welcome to everyone joining our Q3 2021 earnings call. I'm pleased to report another exceptional quarter as we head into the final months of 2021. During Q3, robust investment activity totaling over $225 million and outstanding portfolio operating performance with 100% rent collections has positioned us for a strong close to our first full calendar year as a publicly traded company. In addition, we continue to strengthen our balance sheet by successfully executing on a $375 million inaugural 10-year public bond offering, and establishing a $400 million ATM program. These actions continue to expand our access to capital and will further support our efforts to maximize financial flexibility and support our defensive growth profile as we close out a strong 2021 and prepare for an active 2022. During the quarter, we closed 11 transactions comprising 18 properties for a total investment of $225.9 million at a weighted average cash cap rate of 6.5%. Leases included 1.8% weighted average rent escalations and a 19.4 year weighted average lease term. Acquisitions completed during the quarter were most heavily weighted towards industrial and healthcare at 59 and 31% respectively, with a smaller concentration in investment grade retail properties at 10%. These transactions demonstrate our ability to selectively acquire across the spectrum of opportunities without significantly influencing the overall risk return profile of our highly diversified portfolio. Initial cash cap rates for Q3 acquisitions ranged from 5.7% to 7.5% and blend to an attractive 6.5% weighted average. Our diversified approach to investing allows us to selectively navigate today's highly competitive acquisition environment without compromising our underwriting standards. We also closed approximately $13 million of additional acquisitions since quarter end. I'll now give a brief overview of several of the key transactions completed during the third quarter. We acquired nine industrial properties and five distinct transactions for a total investment of $142.7 million at an initial cash cap rate of 6.1%. Leases include an initial 18.4 year term and 1.9% annual rent escalations translating into a weighted average gap cap rate of 6.9% over the life of the leases. Four of the five industrial transactions completed during the quarter were sale and leaseback transactions. I'd like to take a moment to briefly highlight one of these industrial acquisitions, a two property sale leaseback of refrigerated food processing facilities located in Wisconsin. The two properties were acquired for a total purchase price of $48.7 million with an initial 20-year lease term. These state-of-the-art food grade facilities are critical to the tenant's operations as evidenced by substantial tenant investments already made in the facilities. In addition, a significant expansion of one of the locations is currently underway and is expected to be completed by the tenant in 2022. Industrial transactions completed during the quarter demonstrate our ability to continue to source accretive and compelling investments that complement our existing portfolio despite heightened levels of competition within the industrial market. We also acquired a general acute care hospital in Arizona in a sale and leaseback transaction with the tenant for a total investment of $60 million. Lease includes 2% annual rent escalations over an initial 25-year term. The hospital is located in the Tucson MSA in an area with highly favorable demographics supporting the need for the services provided by the hospital. In addition, there are no competing hospitals within 25 miles of the property. The hospital serves a growing retirement community of nearly 100,000 residents and offers a wide range of healthcare services, including a full-service lab and blood bank, cardiac catheterization lab, and an ER. Given the proven leadership team and business plan, supporting demographics, high barriers to entry, and attractive investment risk return profile, We are excited to add this property to our already differentiated healthcare segment of the B&L portfolio. Finally, we added eight investment grade retail properties as part of five transactions during the quarter, all of which were leased to existing B&L tenants. The properties were acquired for a total investment of $23.2 million at a weighted initial cash cap rate of 6.5% and have weighted average lease terms and annual rent escalations of 8.4 years and 50 basis points respectively. Retail acquisitions completed during the quarter continue to substantiate our ability to efficiently transact on one-off, highly granular investment grade retail properties that help enhance our larger sourcing efforts in other segments of the pipeline. Acquisitions completed during the third quarter and in October bring total volume on a year-to-date basis to approximately $520 million. We currently have approximately 102 million of additional assets under our control. which we define as under contract or executed letter of intent. These opportunities continue to be well diversified primarily across industrial and retail assets and bring our year-to-date closed and under control to $622 million. The current market environment remains highly competitive with a substantial amount of capital from both public and private buyers chasing opportunities to close before year-end. Despite heightened levels of competition across all property types, we remain focused on closing out 2021 with a strong Q4 of investment activity that will serve as a tailwind to 2022 earnings. We are revising our full year acquisitions guidance higher to a range of $600 to $700 million. Ryan will provide additional detail regarding further guidance updates in a few moments. During the quarter, we also sold six properties for $26.6 million. These sales continue to reflect our disposition strategy focused on risk mitigation and included four vacant property sales and the disposal of two casual dining assets. During the third quarter, we executed on an early termination of a long-term master lease with an investment-grade office tenant in exchange for a termination fee of $35 million. The early lease termination fee represented approximately 117% of the remaining contractual rents owed to us under the lease, which was set to mature in 2028. Simultaneously, we sold the underlying vacant properties for net proceeds of $15.3 million. Together with the early lease termination fee, we received total net cash proceeds of $50.3 million. We originally acquired the two properties from the tenant via a sale and leaseback transaction in 2016 for $54.6 million and have since collected $21.8 million in triple net rents. Following this transaction, our office portfolio exposure was reduced to 7.9% of our ABR as of quarter end. I'm thrilled to announce this outcome as it demonstrates our patient and methodical approach to portfolio management and ability to protect shareholder value due to the quality of our tenants and the combined strength of our underlying leases and corresponding real estate. As always, we continue to monitor the portfolio closely and feel confident in the current operating profile and health of our tenants across all segments of the portfolio. We collected 100% of base rents during the quarter, and occupancy improved 10 basis points to 99.8%, leaving only four of our 696 properties vacant at quarter end. I'll now turn the call over to Ryan to provide additional detail on our Q3 results, recent capital markets activity, and our final guidance update for 2021.