Broadstone Net Lease (BNL) Q3 Earnings call transcript Oct 31, 2024

Broadstone Net Lease (BNL) recently held its third quarter 2024 earnings call, where executives shared updates on the company's performance and strategic initiatives. The call was marked by a sense of optimism and confidence in the company's future, with a focus on repositioning the portfolio, enhancing AFFO per share growth, and strategically entering new markets.

Rebalancing the Portfolio

BNL has been actively repositioning its portfolio, reducing its exposure to clinical health care assets. With the sale of 10 such assets, the company has successfully lowered its exposure to this sector below 10%, with clinical assets now representing approximately 4% of its ABR. The remaining clinical assets are expected to be disposed of gradually, with transaction timelines extending into 2025 and beyond. This strategy allows BNL to focus on industrial, retail, and restaurant assets, which are expected to provide a stronger foundation for future growth.

Build-to-Suit Strategy

One of the key drivers of BNL's growth strategy is its build-to-suit development projects. The company has made significant progress in this area, with substantial completion of a 1 million square foot Tri-Climate food distribution asset for UNFI in Sarasota, Florida. This project, which began ahead of schedule and under budget, is now operational and contributing to BNL's earnings base. The company also has a robust pipeline of committed developments, valued at $405 million, with attractive initial cash yields and straight-line yields exceeding 9%. These projects are expected to drive future growth and further strengthen BNL's position in the market.

Financial Performance

BNL's financial performance in the third quarter was marked by AFFO of $70 million or $0.35 per share, a slight decrease from the previous year. This was primarily due to lower lease revenues resulting from the health care simplification strategy and incremental expenses related to vacant assets. However, the company remains optimistic about the future, with a strong financial position and ample capacity to fund committed build-to-suit investments and evaluate new opportunities.

Outlook and Challenges

Looking ahead, BNL remains cautious about the impact of higher interest rates on consumer-centric industries and tenants with less flexible capital structures. The company is actively monitoring tenant credit risk and is working to optimize outcomes for vacant properties. Despite these challenges, BNL is confident in its ability to navigate the market and continue its growth trajectory.

Conclusion

Broadstone Net Lease's third quarter 2024 earnings call underscored the company's strategic focus on repositioning its portfolio, enhancing AFFO per share growth, and capitalizing on build-to-suit opportunities. With a strong financial position and a clear strategic direction, BNL is well-positioned for future success in the net lease market.