Broadstone Net Lease, Inc.

Please note that today's call is being recorded. During the presentation, you can register to ask a question by pressing star followed by one on your telephone keypad. I will now turn the call over to Brent Maidel, Director 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 Leases' fourth quarter 2023 earnings call. On today's call, you will hear prepared remarks from CEO John Marano, President and COO, Ryan Albano, and CFO, Kevin Fennell. All three will be available for the Q&A portion of this call. As a reminder, the following discussion and answers to your questions contain forward-looking statements, which are subject to risk and uncertainties that can cause actual results to differ materially due to a variety of factors. We caution you not to place under reliance on these forward-looking statements and refer you to our SEC filings, including our Form 10-K for the year ended December 31st, 2023, 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. In conjunction with and included within our earnings release, we provided details on our ongoing efforts to simplify our healthcare portfolio to the disposition of clinically oriented assets. These materials have been furnished with the SEC and may be found on the investor relations section of our website at broadstone.com. With that, I'll turn the call over to John. Thank you, Brent.

Good morning, everyone. I'm proud of what our team accomplished throughout 2023 and what was a uniquely challenging year on many fronts. But before jumping into perspectives on our fourth quarter and full year results and market conditions, I would like to take a few minutes to discuss our decision and ongoing efforts to simplify our portfolio composition through the sale of our clinically oriented healthcare assets, specifically clinical, surgical, and traditional medical office building properties, commencing with our announcement of an agreement to sell 37 of these assets for $253 million that we anticipate to close in the first quarter. The volatile macroeconomic conditions and suppressed transaction environment we experienced in my first year as CEO provided our team with a great opportunity for internal process and portfolio evaluation. We completed a number of internal objectives and priorities, but perhaps the greatest was the clarity we obtained in our decision to simplify our portfolio, sell our clinical, surgical, and traditional MOB assets, focus more intently and proactively on the industrial space and our other core investment verticals, of retail and restaurant assets and remove the complexity caused by holding healthcare assets not customarily included in the net lease wrapper. Since going public in the fall of 2020, the composition and complexity of our healthcare portfolio has been a hurdle for many investors over the years, and for good reason. Clinical, surgical, and traditional medical office building assets do not always fit well within the traditional net lease framework. While they can be high quality in nature, these types of assets generally have shorter lease durations, greater landlord responsibilities, longer potential downtime upon lease maturity, and in some cases, greater potential challenges with tenants, Green Valley being the starkest example. While the characteristics of these assets can make them attractive for a dedicated healthcare property investor and manager, those same characteristics can make them onerous for a net lease read operator. At one time, our diversified healthcare portfolio may have served as a positive differentiator, but it has since become a negative distraction as a publicly traded net lease REIT and a challenge to our growth and performance. With this important strategic step, I believe we are positioning BroadStone NetLease for long-term value creation and multiple expansion. After a detailed review, we identified 75 clinical, surgical, and traditional medical office building assets for sale. On a pro forma basis, after completion of these sales, our healthcare exposure would be reduced by approximately 57%. from approximately 17.6% of our ABR as of year end to approximately 7.5%. Following the sales, the remaining assets in our healthcare portfolio will primarily consist of consumer-centric medical properties that are customary for many publicly traded net lease REITs, examples of which include plasma, dialysis, and veterinary services, assets with real estate fundamentals critical to the tenant's business and little to no regulatory risk. In addition to the 37 assets expected to close in March, we are in varying stages of negotiations on another 38 assets that we intend to provide an update on with first quarter earnings. We expect that some portion of the remaining assets may have a longer hold period as we determine best paths forward for optimal disposition outcomes. I am highly confident in our decision to sell these assets and focus on redeploying proceeds into industrial, resale, and restaurant properties. Our pro forma portfolio statistics as measured by asset mix, occupancy, WALT, fixed rent increases, and tenant diversification, remain top of class. With prudent redeployment, we expect those key metrics will improve even further. We intend to regularly communicate progress on both the disposition and redeployment efforts as they take place and are excited for what is to come for B&L in 2024 and the years that follow. Turning to our 2023 results, I'm happy to report a strong fourth quarter to close out the year. we consistently demonstrated our agility and prudence in a highly dynamic macro environment, characterized by significant fluctuations in interest rates and muted transaction activity across our investment sectors. As we navigated the challenging disconnect between interest rates and cap rates, we maintained our focus on long-term value creation and adaptability, demonstrated by a high degree of discipline and selectivity. As rates retreated from their highs at the end of the fourth quarter, We started to see sellers reenter the market at the beginning of this year with a somewhat refreshed set of expectations as compared to what we had seen during much of 2023. Despite the relative improvement and incremental optimism, we remained mostly on the sidelines, investing $64 million during the fourth quarter, of which $16 million was revenue-generating capex. As an example of our continued discipline, as well as the challenging transaction market, late in the fourth quarter, we walked away from a roughly $70 million investment opportunity, as the unfortunately increasing challenges in the insurance market proved insurmountable in this instance, resulting in an investment that would have exceeded our risk tolerance. Despite the lower than expected investment volume, we are pleased to report a full year AFFO of $1.41 per share, in line with our guidance as we realized operational efficiencies across G&A and bad debt. In our efforts to prudently redeploy disposition proceeds, we have secured 97.1 million of investments under control, which we expect to close during the first and second quarters. While our pipeline of opportunities has improved compared to 2023, we continue to believe a higher degree of selectivity is required as we navigate the macro backdrop. We also continue to focus on sourcing off-market investments and unique capital allocation opportunities where we can partner with developers and tenants seeking capital solutions as the constraints on traditional commercial real estate lending persist. Our objectives for 2024 include redeploying substantially all of our anticipated disposition proceeds during the year, which is embedded within our 2024 guidance. Shifting to our overall portfolio, which remains predominantly leased to industrial and defensive retail and restaurant tenants, it continued to perform exceptionally well, as evidenced by 99.2% rent collections during the fourth quarter and 99.4% occupancy as of December 31st, 2023. Green Valley Medical Center was the only rent outstanding as of December 31st, and we began marketing the asset for sale during the quarter. This decision resulted in us recognizing an approximately $26 million impairment. While early in the process, we have seen indications of interest from multiple parties for various uses, and we remain focused on putting this distraction behind us by the middle of the year. With that, I'll turn the call over to Ryan, who will provide an update on our portfolio.