Broadstone Net Lease, Inc.

Hello and welcome to BroadStone NetLease second quarter 2024 earnings conference call. My name is Kiki and I will be your operator today. Please note that today's call is being recorded. I will now turn the call over to Brent Madel, Director of Corporate Finance and Investor Relations at BroadStone. Please go ahead.

Thank you everyone for joining us today for BroadStone NetLease's second quarter 2024 earnings call. On today's call, you will hear prepared remarks from Chief Executive Officer John Marrano, President and Chief Operating Officer Ryan Albano, and Chief Financial Officer Kevin Funnell. 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 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, 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 at the date of this call. With that, I'll turn the call over to John.

Thank you, Brent, and good morning, everyone. I am pleased to report another strong quarter of results. We are on the cusp of substantially completing our healthcare portfolio simplification strategy, having fully redeployed those proceeds into closed and committed investments and are continuing to build a strong pipeline focused on our core building blocks of growth. Seeing incremental revenue generating capital expenditures with our existing tenants and build to suit funding opportunities with our development partners that supplement our traditional net lease acquisition pipeline. I'm exceptionally proud that we were able to successfully navigate that process At the same time, we redeployed the proceeds into attractive investment opportunities. We are incredibly proud of the progress we've made on our strategic objectives for 2024. While we recognize that the current outlook for interest rates has provided a tailwind for the broader net lease space, we believe investors are beginning to reward our consistent and successful execution on our strategic initiatives. Our shares are now trading at or around an 18-month high, and we believe there is still plenty of room for continued multiple expansion as we fulfill our growth objectives. As we've previously reported and discussed on last quarter's call, the majority of the 217.3 million of cash flowing investments we made in Q2 were closed early in the quarter and sourced through direct relationships. Throughout the quarter, we continue to creatively source investment opportunities that fit within our buy box, notably including build to suit and forward commitments through existing relationships. We believe these opportunities are an important part of our core building blocks and a key differentiator in our mission to drive long-term sustainable growth. As we move into the back half of the year, we are maintaining our AFFO guidance range of $1.41 to $1.43 per share and slightly adjusting our investment, disposition, and cash G&A ranges. Starting this year with a view that a neutral AFFO per share result might be our best case scenario as a result of our decision to strategically exit clinical healthcare, I am pleased that our execution this year will result in modest growth for 2024 and, more importantly, will set us up well for 2025 and 2026. Before I walk you through details on our growing investment pipeline, which now encompasses nearly 408.6 million of new investments under control and commitments to fund developments, I would like to further highlight the significant progress we've achieved this year on our clinical healthcare simplification strategy. Our team executed decisively early in the first quarter and through the first half of the year, completing the sale of 38 assets for 262 million. This momentum continued early in the third quarter with a third party buyer completing due diligence on 15 additional assets, closing on five of them in early July, with the remaining 10 assets scheduled to close in October. These successful transactions will bring our total clinical healthcare dispositions to $342.5 million year to date at a weighted average cash cap rate of 7.9%. Combined with our redeployment efforts and incremental investment activity, we anticipate this will reduce our healthcare exposure to approximately 11% of our total ABR at the end of 2024. While we continue to engage in negotiations and marketing for our remaining clinically oriented healthcare assets, we anticipate these sales will follow a more typical asset management approach and take time to achieve optimal disposition outcomes. With a substantial majority of our clinical healthcare simplification strategy successfully behind us, I'm excited to look ahead and walk you through our evolving investment pipeline that we announced last night, including a number of highly compelling build-to-suit transactions we have been pursuing as part of our overall mission to drive long-term sustainable growth. Of the $408.6 million in investments under control and commitments to fund developments, approximately $307 million are brand-new specialized industrial and QSR bill-to-suit assets, including food distribution, cold storage, and manufacturing properties delivering in 2025 and 2026. These investments represent unique opportunities for us to capture higher going-in cash cap rates and straight-line yields compared to much of the regular-way product that we are seeing in the traditional acquisition market. We are achieving these attractive yields not because we are running up the risk spectrum, but because we are creatively sourcing and structuring investment opportunities with our developer partners. Once construction is completed and these assets are stabilized, we believe they would trade up to 150 to 200 basis points tighter than where we executed. We are not only generating attractive yields on high-quality build-to-suits, we are also creating long-term value and NAV accretion. Ryan will go into more detail on some of the specifics around our current pipeline and opportunity set. We view these development opportunities as an increasingly important part of our core building blocks to sustainable long-term growth, which include best-in-class fixed rent escalations, revenue-generating CapEx investments in our existing tenants and assets, development funding opportunities, and traditional external acquisitions. While the commercial real estate and lending environment has certainly played a role in generating these opportunities, we believe there's a long-term role for BroadStone NetLease as the funding partner of choice for our development partners, even when interest rates eventually decline. The regular way transaction market is beginning to show increased activity as we get into the back half of the year. So absolute levels remain compressed and much of what we are seeing continues to price at levels we believe misrepresent the underlying risks. We remain highly selective and are excited about the 69.3 million of investments we have under control and expect to close in the third quarter. The combination of our building blocks will naturally vary based on market conditions, as is the case today with more muted volumes for traditional sale leaseback and assumption deals. Our ability to rely on more than one investment channel and allocate capital to the areas where we see the best risk adjusted return opportunities provides a compelling path to near and medium term value creation and earnings growth. Turning to our portfolio through dispositions and ongoing investment opportunities, our portfolio composition is becoming gradually more weighted towards our industrial and defensive retail and restaurant sectors. These assets continue to perform well during the quarter as evidenced by 99.8% rent collections excluding Green Valley and 99.3% occupancy as of June 30, 2024. While our overall operating results remain strong, we are seeing incremental pockets of credit risk as the broader impact from the duration of higher interest rates appears to be having an effect on consumer-centric industries and entities with less flexible capital structures. We remain vigilant in our tenant monitoring efforts and maintain great confidence in our portfolio due to its diversified construction, which limits the impact of any potential individual credit event, and our proven ability to manage through any such situation that may arise. With that, I'll turn the call over to Ryan, who will provide additional details on our transaction efforts, our building blocks for growth, and portfolio updates.