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Broadstone(BNL) - 2024 Q2 - Earnings Call Transcript
BNLBroadstone(BNL)2024-07-31 16:51
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Financial Data and Key Metrics - AFFO for Q2 2024 was 70millionor70 million or 0.36 per share, a 2.9% increase year-over-year, driven by lower interest expense and partially offset by lower lease revenues due to the healthcare simplification strategy [22] - The company maintained its AFFO guidance range of 1.41to1.41 to 1.43 per share and slightly adjusted investment, disposition, and cash G&A ranges [6][24] - Leverage stood at 5.1x net debt, up slightly from 4.8x at the end of Q1 2024, with pro forma net debt at 4.9x including the UNFI build-to-suit project [23] Business Line Data and Key Metrics - The company completed the sale of 38 healthcare assets for 262millioninQ2,withanadditional15assetsexpectedtocloseinOctober,bringingtotalhealthcaredispositionsto262 million in Q2, with an additional 15 assets expected to close in October, bringing total healthcare dispositions to 342.5 million year-to-date at a weighted average cash cap rate of 7.9% [7] - The healthcare exposure is expected to reduce to approximately 11% of total ABR by the end of 2024 [8] - The company closed 247.8millionininvestmentsduringQ2,including247.8 million in investments during Q2, including 165.1 million in acquisitions at a 7.3% cap rate, 30.5millioninUNFIbuild−to−suitfunding,and30.5 million in UNFI build-to-suit funding, and 52.2 million in transitional capital [17] Market Data and Key Metrics - The portfolio composition is shifting towards industrial and defensive retail and restaurant sectors, with 99.8% rent collections (excluding Green Valley) and 99.3% occupancy as of June 30, 2024 [12] - The company is seeing incremental pockets of credit risk in consumer-centric industries due to higher interest rates, but the diversified portfolio limits the impact of individual credit events [13] Company Strategy and Industry Competition - The company is focusing on build-to-suit and forward commitments, with 408.6millioninnewinvestmentsundercontrolandcommitmentstofunddevelopments,including408.6 million in new investments under control and commitments to fund developments, including 307 million in specialized industrial and QSR build-to-suit assets [9][10] - The company believes its ability to source and structure investment opportunities creatively with developer partners allows it to achieve attractive yields without increasing risk [9] - The company is maintaining a selective approach to traditional acquisitions, with 69.3millionofinvestmentsundercontrolandexpectedtocloseinQ32024[11]ManagementCommentaryonOperatingEnvironmentandFutureOutlook−Managementhighlightedthesuccessfulexecutionofthehealthcaresimplificationstrategyandtheredeploymentofproceedsintoattractiveinvestmentopportunities[5][7]−Thecompanyisoptimisticaboutthelong−termroleofBroadstoneNetLeaseasafundingpartnerfordevelopmentpartners,eveninadeclininginterestrateenvironment[11]−Managementremainscautiousaboutthemacroeconomicbackdrop,particularlyforindustriessensitivetodiscretionaryconsumerspending[19]OtherImportantInformation−Thecompanyexecuted69.3 million of investments under control and expected to close in Q3 2024 [11] Management Commentary on Operating Environment and Future Outlook - Management highlighted the successful execution of the healthcare simplification strategy and the redeployment of proceeds into attractive investment opportunities [5][7] - The company is optimistic about the long-term role of Broadstone Net Lease as a funding partner for development partners, even in a declining interest rate environment [11] - Management remains cautious about the macroeconomic backdrop, particularly for industries sensitive to discretionary consumer spending [19] Other Important Information - The company executed 460 million in forward-starting SOFR swaps during the quarter to reduce rate uncertainty through 2025, locking in a weighted average SOFR rate of 3.7% [23] - The Board of Directors maintained a 0.29 dividend per common share and OP unit, payable in October 2024 [24] Q&A Session Summary Question: Investment Mix Over the Next 12 Months - The company plans to balance development opportunities, regular way acquisitions, and other pipeline activities, with 307 million in active development deals and 400millioninprospects[25][26]Question:CapitalAllocationandEquityIssuance−Thecompanydoesnotplantoissueequityimmediately,asithasampleliquidityandleveragewellbelowtargetlevels,andwillcontinuetofundgrowththroughcapitalrecyclinganddispositions[27][28]Question:DevelopmentOpportunityCashYields−Developmentopportunitiesaretargetingupfrontcashyieldsinthemid−7s,withstraight−lineyieldsreachingmid−8stolow−9s,whichareattractivecomparedtoregularwaytransactions[29]Question:DevelopmentFundingCommitments−The400 million in prospects [25][26] Question: Capital Allocation and Equity Issuance - The company does not plan to issue equity immediately, as it has ample liquidity and leverage well below target levels, and will continue to fund growth through capital recycling and dispositions [27][28] Question: Development Opportunity Cash Yields - Development opportunities are targeting upfront cash yields in the mid-7s, with straight-line yields reaching mid-8s to low-9s, which are attractive compared to regular way transactions [29] Question: Development Funding Commitments - The 307 million in build-to-suit commitments includes seven opportunities ranging from 2millionto2 million to 170 million, with rent commencement dates phased between Q1 2025 and Q2 2026 [32] Question: Healthcare Simplification Strategy Progress - The remaining healthcare assets will be sold through a traditional asset management approach, with some requiring lease extensions or tenant improvements, extending the timeline into 2025 [33] Question: Cap Rate Trends - Cap rates have plateaued, with industrial assets seeing increased competition and cap rates trending into the high-6s, while the company remains disciplined in targeting mid-7s for regular way deals [35][36] Question: Acquisition Pipeline Mix - The $69.3 million acquisition pipeline includes a large retail site and a large industrial acquisition [40] Question: Build-to-Suit Land Acquisition Strategy - The company ensures land is under control by developers or tenants before committing to build-to-suit projects, providing certainty for development pipelines [42]