• AFFO: $70 million or 35 per share, a decrease of 2.7% year-over-year.
• Committed Developments: $405 million with initial cash yields in the mid to high 7% range and straight line yields exceeding 9%.
• Investment Activity: $93.9 million during the quarter, bringing year-to-date total to $381.9 million.
• Cash G&A Expenses: Approximately $7 million during the quarter; full-year guidance lowered to $31 million to $33 million.
• Leverage Ratio: Pro forma leverage of 4.9 times.
• Dividend: 29 per common share and OP unit, payable on or before January 15, 2025.
• AFFO Guidance: Reaffirmed at $1.41 to $1.43 per share.
• Bad Debt Reserve: 75 basis points for the full year.
• Unsettled Forward Equity: Approximately $39 million in estimated net proceeds.

• Warning! GuruFocus has detected 8 Warning Signs with BNL.

Release Date: October 31, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Broadstone Net Lease Inc (NYSE:BNL) successfully reduced its clinical healthcare exposure to approximately 4% of its asset base, achieving a key strategic goal.
• The company completed a high-quality build-to-suit development project in Sarasota, Florida, ahead of schedule and below budget, with an initial cash yield of 7.2% and a 15-year lease term.
• BNL has a committed development pipeline of $405 million with attractive initial cash yields in the mid to high 7% range and straight-line yields exceeding 9%.
• The company maintained a strong financial position with a pro forma leverage of 4.9 times and ample liquidity, including $870 million of revolver availability.
• BNL reaffirmed its AFFO guidance range of $1.41 to $1.43 per share, indicating confidence in its financial outlook despite strategic asset sales.

Negative Points

• BNL experienced a 2.7% decrease in AFFO per share year-over-year, primarily due to lower lease revenues from its healthcare simplification strategy and incremental expenses from vacant assets.
• The company faces ongoing credit risks in consumer-centric industries and clinically oriented healthcare properties, requiring vigilant tenant monitoring.
• BNL has three vacant properties generating higher operating expenses, impacting financial performance in the back half of the year.
• The traditional net lease acquisition market remains challenging, with a disconnect between pricing expectations and quality opportunities.
• BNL's remaining clinical healthcare assets may take longer to dispose of, potentially extending into 2025 and beyond, due to the need for lease extensions and tenant improvements.

Q & A Highlights

Q: What's keeping you from raising the guidance at this point in the year, given the positive trends in rent collections and cash G&A? A: John Moragne, CEO: The decision to maintain guidance is due to anticipated tenant credit events and additional carrying costs on vacant assets expected to impact Q4. These factors were considered when setting the guidance, and we are confident in our resolutions for these issues moving into Q1.

Q: Can you discuss the current acquisition environment, including volumes and cap rates, and your focus on build-to-suit opportunities? A: John Moragne, CEO: The current market does not present many attractive opportunities, with risk-adjusted returns not aligning with our investment criteria. We are focusing on our build-to-suit pipeline, which offers compelling returns with initial cash cap rates in the mid-7% range and straight-line yields in the nines.

Q: How do you view investment spending for next year, particularly regarding acquisitions versus build-to-suits? A: John Moragne, CEO: In the near term, capital deployment may be smaller, but over a longer period, we plan to allocate approximately $420 million in investments, consistent with historical levels. We are focusing on laddering build-to-suits to ensure consistent growth, while remaining opportunistic with acquisitions.

Q: What is the strategy for remaining healthcare asset dispositions, and are there other parts of the portfolio you plan to sell? A: John Moragne, CEO: We will continue to manage the remaining 4% of clinical healthcare assets with a traditional asset management strategy, focusing on optimal disposition outcomes. We will also evaluate opportunities for our office assets, which comprise about 5.8% of our portfolio.

Q: How do you plan to manage tenant concentration as you deepen relationships through build-to-suit developments? A: John Moragne, CEO: We maintain a hard line of not exceeding 5% of ABR with any single tenant. While some tenant concentrations may increase slightly, we are comfortable with this as it remains within our risk management framework.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.