Broadstone Net Lease, Inc.

Hello and welcome to BroadStone NetLease's first quarter 2022 earnings conference call. My name is Sam 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. Mike, please go ahead.

Thank you operator and thank you everyone for joining us today for BroadStone NetLease's first quarter 2022 earnings call. On today's call, You will hear from our Chief Executive Officer, Chris Czarnecki, our Chief Financial Officer, Ryan Albano, and our Chief Operating Officer, John Marrano, will be available for 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 31st, 2021, 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 Czarnecki.

Good afternoon and welcome, everyone. I'm pleased to report a strong start to 2022 with a first quarter of solid operating results. The first quarter represented several firsts for B&L, including the largest first quarter of acquisition volume and strongest start to a year since we began investing in net lease real estate over 15 years ago. Additionally, we completed our first targeted acquisition north of the border, which has expanded our footprint into several very attractive new markets all across Canada. I will provide further details on both of these milestones in just a few moments. But first, I'd like to touch on how our diversified strategy has uniquely positioned us to successfully navigate the current market environment and many of the challenges facing the broader net lease space. Following what was a historic year in net lease acquisition market during 2021, the current transaction environment remains highly competitive. Asset prices have generally held firm as substantial amounts of capital from private and public buyers continue to aggressively chase transactions. Although sustained levels of elevated inflation rising interest rates and volatility in equity markets have posed new challenges in the first few months of the year, our diversified strategy positions us to flexibly navigate this dynamic environment. Our diversified approach to investing allows us to adapt quickly during periods where changes in cap rates lag changes in cost of capital. We are able to adjust our capital allocation decisions across a wider buy box to ensure a consistent flow of acquisition opportunities that meet our evolving cost of capital and our risk-adjusted return expectations. In addition, a smaller asset base provides the ability to remain highly selective while still producing meaningful growth and earnings with relatively modest levels of acquisitions. Granular diversification successfully acted as a defensive hedge during the COVID pandemic. Now diversification will prove to be an offensive advantage in today's market environment. During the first quarter, we invested $210 million in 27 properties at a weighted average initial cash cap rate of 5.7%. The leases include a strong weighted average lease term of 19.3 years and solid 1.5% annual rent escalations, translating into a gap cap rate of 6.4%. Acquisitions completed during the first quarter continue to showcase how our diversified approach to capital allocation creates a consistent pipeline of attractive opportunities despite highly competitive market dynamics. Acquisitions completed during Q1 were more heavily weighted towards restaurant and retail at 50% and 37% respectively, while industrial accounted for the remaining 13%. We remain committed to sourcing and closing acquisitions across all of our core property verticals. While the composition may vary from quarter to quarter, We expect the overall portfolio concentration levels by property type to remain stable given the size of our existing portfolio and the composition of our current pipeline. On the financing side, successful capital markets execution during the second half of 2021 helped to fuel this accretive growth during the first quarter. Capital raised as part of our inaugural public bond and follow-on offerings coupled with equity issuance via our ATM program in Q4 allowed us to creatively transact on several high quality opportunities that I'm pleased to provide additional detail on. During the quarter we acquired a portfolio of 16 upscale restaurants located across 10 different states for a total of $100 million. Leases include weighted average annual rent escalations of 1.1% and a weighted average lease term of 19.5 years. The 16 sites were diversified across four different concepts and mass release to a national operator with nearly 50 total locations and over 30 years of experience. The assets are located in attractive retail corridors and exhibit strong operating metrics that translate into robust rent to sales and rent coverage ratios. We are excited to add additional restaurant exposure to the portfolio. Since returning to invest in the restaurant space during Q4, We have thoughtfully and modestly increased our exposure from 13% to 15% of total ABR through two separate restaurant portfolio transactions. We also added nine retail assets and three separate transactions for a total of $83 million during the first quarter. The leases include weighted average annual rent escalations of 1.9% and an average 19.4 year lease term. These retail transactions include our first targeted portfolio acquisition in Canada, which is comprised of six high-quality retail locations master leads to Canada's leading retailer of outdoor recreation gear. The assets are located in premier urban markets, including Vancouver, Calgary, Winnipeg, Ottawa, and Toronto. This milestone transaction has allowed us to meaningfully expand our footprint into new markets through a high-quality portfolio of scale. We now own seven assets in Canada, representing 2.4% of total ABR, and we'll continue to evaluate select opportunities north of the border that complement our existing portfolio. 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 escalations of 2.1% and a weighted average lease term of 18.5 years. The largest of the two transactions was a sale, leaseback, of a food-grade manufacturing facility located south of Minneapolis. Fifty percent of the asset's footprint is dedicated cold storage space, and the site is intended as a sole production facility for over 120 prepared food products. The second industrial transaction completed during Q1 was an off-market acquisition of a warehouse facility leased to one of the largest wholesale distributors of materials in the U.S. The property is located just south of downtown Oklahoma City. We're thrilled to add both these industrial assets to our portfolio amidst what has been a challenging industrial acquisition market. We remain committed to maintaining our underwriting standards and continue to transact on select industrial assets, such as these that fit within our overall risk return profile. Since quarter end, we've closed on 27.2 million of transactions and currently have over 164 million of opportunities under control, which we define as executed contract or letter of intent. With a strong start to the year and a robust pipeline of opportunities, I would like to reiterate our confidence in our full year 2022 acquisition guidance of $700 to $800 million. We remain intensely focused on prudent capital allocation and will continue to prove how our diversified approach to investing provides a unique advantage in the current environment. Our portfolio continues to perform exceptionally well, with 100% of base rents collected during the first quarter and occupancy of 99.8% as of quarter end. All but two of our 752 properties were subject to a lease, and our properties were occupied by 210 different commercial tenants with no single tenant accounting for more than 2.1% of ABR. Our portfolio has been deliberately constructed and is uniquely positioned to weather any singular tenant credit event. From the call over to Ryan to provide additional detail on our Q1 2022 results, recent capital market activity, and our current guidance for 2022. Ryan?