Broadstone Net Lease, Inc.

Hello and welcome to Broadstone Net Lease's second quarter 2022 earnings conference call. My name is Sarah 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, for joining us today for Broadstone Net Lease's second quarter 2022 earnings call. On today's call, you will hear from our Chief Executive Officer, Chris Czarnecki, our Chief Financial Officer, Brian Albano, and our Chief Operating Officer, John Morena, who 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.

Thank you, Mike, and good morning, everyone. As we make our way into the second half of 2022, we continue to rely on our diversified net-lease strategy to generate consistent and predictable results for our shareholders. Despite a heightened level of macroeconomic uncertainty and persistent volatility in both the equity and debt markets, I'm pleased to report another strong quarter of results across all facets of our business. Before I dive into Q2 operating results, I'd like to take a moment to reiterate how our diversified net-lease strategy defensively positions us in today's dynamic market environment. As I've stated on previous calls, our diversified strategy uniquely positions B&L relative to many of our NetLease peers to perform across all market cycles and economic backdrops. Relative to other REIT sectors, NetLease has proven to be both defensive and resilient during periods of economic stress, and we feel that our differentiated strategy, well-constructed and highly diversified portfolio along with a fortified balance sheet, provides us the flexibility to navigate periods of dislocation or changes in cap rates by changes in cost of capital. Diversification provides both defensive and offensive advantages during challenging economic times. Our strategy continues to offer unique benefits during the current rising rate and inflationary environment. We are confident that our strategy positions us to achieve both defensive internal growth as well as consistent and accretive external growth in the face of current economic pressures. From a defensive perspective, our portfolio of 764 properties is comprised of 213 tenants diversified across 57 industries with no single tenant accounting for more than 2% of annualized base rent. Granular diversification coupled with strong weighted average annual rent escalations of 2% translates into consistent and reliable same store growth. Our portfolio has been deliberately constructed to withstand any single tenant credit event. Many of the industries in which we are invested are non-discretionary in nature and are better positioned to withstand economic downturns. In addition, while our portfolio is comprised of many non-investment grade tenants, hyperdiversification has proven to synthetically create a lower risk profile than a simple investment grade metric would otherwise indicate. I am pleased to report 100% of base rents were collected during the second quarter, and the portfolio was 99.8% leased as of quarter end. From an offensive point of view, having a wider buy box that includes multiple property types allows us to pivot quickly in response to sudden or dramatic changes in cost of capital. Clearly, the long-term cost of debt for all net lease REITs is considerably higher today when compared to year end. In addition, the cost of equity has changed year to date. for all not least REITs, but more specifically those focused on non-investment grade tenants. Ryan will provide details in a few moments on our capital markets execution and balance sheet strategy and how we have proactively managed this part of the business to position ourselves well for the remainder of the year. While cap rates in certain asset classes have experienced increases year to date, we have yet to see meaningful expansion in cap rates commensurate with the changes in cost of capital experienced year to date. During this period of dislocation, our diversified approach to investing has given us the ability to pivot quickly to maintain accretive spreads on new acquisitions. While we've been forced to be more selective given the environment, we're pleased with the opportunities that we have chosen to pursue year to date. During the second quarter, we invested $182 million in 15 properties at a weighted average initial cash cap rate of 6.4%. The leases include a strong weighted average lease term of approximately 20 years, and solid 2.1% annual rent escalations, translated into robust weighted average cap rate of 8%. Our diversified approach to investing has allowed us to adjust our capital allocation decision making in response to sudden changes in our cost of capital. While we closed many transactions during the second quarter that we're committed to in Q1, we are pleased with the meaningful expansion in our weighted average initial cash cap rate quarter over quarter. Although investment spreads are not as wide relative to where they were last year, were pleased with both the near and long-term accretion produced by Q2 transactions. Acquisitions completed during the quarter were more heavily concentrated to industrial opportunities at 82%, with a smaller percentage of retail and healthcare transactions at 11% and 7%, respectively. The heavier concentration to industrial during the second quarter helps to balance out a first quarter that included more restaurant and retail transactions. We were able to source several attractive opportunities this past quarter that I'm pleased to provide additional detail on. During Q2, we acquired eight industrial properties in five separate transactions for a total of $149 million. The leases include weighted average annual rent escalations of 2.2% and a weighted average 22-year lease term. These transactions include several unique opportunities, including the expansion of an existing tenants facility. Last year, we completed and announced a two property sale and leaseback transaction of a refrigerated food processing facilities located in Wisconsin. At the time of the initial transaction, the tenant was well underway with a significant expansion of one of the purchased facilities, which we agreed to fund a portion of the costs upon completion, which occurred in the second quarter. This unique opportunity to support an existing tenant as they invest in our asset and grow their business showcases our partnership-based approach to investing. In addition, we completed a sale and leaseback transaction on a portfolio of hardwood floor manufacturing and distribution assets during Q2. Properties are master leased and located across several attractive markets in the southeast. We were able to acquire these assets after several lever buyers dropped out of the process as financing conditions changed rapidly. We continue to see this theme occur in the industrial transaction market and are ready to execute as attractive opportunities such as this present themselves in the future. During the quarter, we continued to acquire several investment-grade assets leased to discount retailers, which are relatively insulated from recessionary and or inflationary pressures. We continue to view small one-off investment-grade transactions as an attractive complement to our larger sourcing efforts. Finally, we acquired a single-site medical education and lab facility for approximately $13 million. The state-of-the-art facility was designed and constructed by a leading national developer and is dedicated to the tenant's nursing and medical education programs. The lease includes a new 10-year term that commenced at the time of completion, as well as attractive 3% annual rent escalations. This opportunity was sourced through an existing developer relationship, and we're hopeful that the relationship will continue to yield additional opportunities in the future. Since quarter end, we've closed an additional $80 million of transactions and currently have approximately $71 million of opportunities under control, which we define as having and executed contract or letter of intent. With approximately $544 million of acquisitions either closed or under control year to date, or 73% of the midpoint of our current acquisition guidance, I'm pleased to reiterate our confidence in our current full year 2022 acquisitions guidance range of $700 to $800 million. The current market environment requires us to remain highly selective, but we are confident that our diversified capital allocation strategy will translate into an opportunity set that meets our risk and return expectations in the second half of the year. With a smaller asset base relative to many of our net lease peers, we're able to produce meaningful growth in earnings with relatively modest levels of acquisitions. I'll now turn the call over to Ryan to provide additional detail on our quarterly financial results, recent capital markets execution, balance sheet positioning, and our current guidance for 2022.