Business Updates - Broadstone Net Lease, Inc. issued a press release on September 9, 2024, updating recent business activities and announcing participation in the Wells Fargo 13th annual net lease REIT forum[4]. Regulatory Compliance - The company is not classified as an emerging growth company under the Securities Act of 1933[3]. - The press release is incorporated by reference in the Current Report on Form 8-K, indicating ongoing compliance with SEC regulations[5]. - The financial statements and exhibits related to the report are included in the filing, ensuring transparency and adherence to reporting standards[5]. - The report was signed by John D. Callan, Jr., Senior Vice President, General Counsel and Secretary, affirming the authenticity of the information provided[6].

Core Viewpoint - The article highlights three small-cap REITs that are expected to deliver solid total returns through dividends and capital appreciation, focusing on their financial performance and market positioning. Group 1: CTO Realty Growth (CTO) - CTO Realty Growth is a Florida-based REIT with a market cap of approximately $443.2 million and a portfolio of 20 properties totaling 3.9 million square feet, achieving 93% occupancy and generating $81.1 million in annualized base rent (ABR) in 2024 [4][7]. - The company targets business-friendly markets, primarily in the Southeast and Southwest regions, with Atlanta being its largest market, contributing 36% of its portfolio [4][5]. - For Q2 2024, CTO reported total revenue of $28.8 million, a 10.8% increase from $26.0 million in Q2 2023, with Core FFO of $10.4 million ($0.45 per share), reflecting a 7.8% year-over-year increase [7]. - The company raised its 2024 Core FFO guidance to a range of $1.81 to $1.86 per share, indicating a 12% increase at the midpoint [8]. Group 2: Alpine Income Property Trust (PINE) - PINE is a net lease REIT externally managed by CTO, with a portfolio of 137 properties totaling 3.8 million square feet across 34 states, and an ABR of $39.8 million as of Q2 2024 [10][11]. - The company has improved tenant diversity, with 67% of its ABR derived from investment-grade tenants, and reported a current occupancy rate of 99.1% [11][12]. - PINE's AFFO is expected to grow by almost 9% in 2024, while it trades at a lower multiple compared to peers, with a current P/AFFO of 10.99x [13][18]. Group 3: Broadstone Net Lease (BNL) - BNL specializes in single-tenant commercial properties, with a market cap of approximately $3.5 billion and a portfolio of 777 properties located in 44 states, achieving 99.3% occupancy [21][22]. - The company reported total revenue of $105.9 million in Q2 2024, a slight decrease from $109.4 million in Q2 2023, with Core FFO of $73.0 million ($0.37 per share) [24]. - BNL has an average AFFO growth rate of 1.32% since 2021, with a projected increase of 1% in 2024, and currently pays a 6.57% dividend yield [25].

Core Viewpoint - Broadstone Net Lease (BNL) is undergoing a healthcare portfolio simplification strategy to enhance its overall quality and focus on industrial properties, which are expected to drive long-term value creation and multiple expansion [2][3]. Company Overview - BNL operates as a diversified REIT across five property sectors: industrial (54.6% of ABR), restaurants (14%), healthcare (12.7%), retail (12.6%), and office (6.1%) [2]. - The company aims to reduce its exposure to non-core, underperforming assets, particularly in the healthcare sector, which has been identified as a risk factor [2][3]. Financial Performance - As of June 2024, BNL reported an occupancy rate of 99.3% across 777 properties totaling 38.5 million square feet, despite challenges in the industrial property sector [4][5]. - The weighted average lease term (WALT) stands at 10.4 years, indicating strong lease stability compared to peers [5][6]. - BNL achieved a significant investment volume of $247.8 million in Q2 2024, surpassing Q1 2024 by over $207 million and exceeding the total for 2023 [8][12]. Portfolio Restructuring - The company has completed dispositions of 38 properties since December 2023, reducing the healthcare segment's share in ABR to approximately 12.7%, with further reductions expected [15][16]. - BNL's investment strategy has increasingly focused on industrial properties, which accounted for 71% of total investment volume from 2019 to 2024 [16][17]. Market Position and Valuation - BNL's forward-looking P/FFO ratio is 11.6x, which is competitive compared to other REITs, but ongoing portfolio restructuring may limit its potential for multiple expansion [63]. - The company maintains a strong balance sheet with a BBB credit rating and a weighted average cost of capital (WACC) of approximately 7.2% [18][13]. Growth Potential - BNL is positioned for double-digit total returns driven by multiple expansion, high-yielding dividends, and both internally and externally driven rent growth [64]. - The company is expected to continue targeting attractive property segments, enhancing its investment volume in the upcoming quarters [16][64].

Portfolio Overview - As of June 30, 2024, the company’s portfolio includes 777 properties, with an annualized base rent (ABR) of $385.5 million and a weighted average remaining lease term of approximately 10.4 years[78][81]. - Approximately 99.3% of the portfolio is leased, with 97.4% of leases having contractual rent escalations, averaging a minimum increase of 2.0%[78]. - The portfolio is diversified across various property types, with 54.6% in industrial, 14.0% in restaurants, and 12.7% in healthcare as of June 30, 2024[81]. - Total portfolio ABR is $385,485,000, representing 100.0% of the total portfolio[85]. - Industrial properties account for 54.6% of total ABR, with an ABR of $210,396,000[82]. - Healthcare properties contribute 12.7% to total ABR, totaling $48,849,000[82]. - Retail properties make up 12.6% of total ABR, amounting to $48,772,000[82]. - The top 10 tenants represent 20.2% of total ABR, with $77,926,000[84]. - The largest tenant, Roskam Baking Company, contributes $15,917,000, accounting for 4.1% of total ABR[84]. - Restaurants sector has an ABR of $54,827,000, which is 14.2% of total ABR[85]. - Packaged Foods & Meats sector contributes $45,974,000, representing 11.9% of total ABR[85]. - Total square footage of the portfolio is 38,450,000 square feet, with industrial properties comprising 78.4% of this total[82]. - Untenanted properties account for 0.7% of total square footage, totaling 267,000 square feet[85]. - Texas has the highest number of properties at 67, contributing $36,578,000 in ABR, which is 9.5% of the total portfolio[86]. - California has 18 properties with an ABR of $24,334,000, representing 6.4% of the total portfolio[86]. - The highest ABR percentage from a single state outside Texas is from Michigan, with 8.5% and an ABR of $32,805,000[86]. - The lease expirations for 2030 account for 12.8% of the total ABR, with 93 properties and an ABR of $49,180,000[87]. - 79% of the ABR is subject to annual lease escalations, with a weighted average annual minimum increase of 2.2%[88]. - The lease expirations for 2024 represent only 0.6% of the total ABR, with just 1 property[87]. - The total square footage of the portfolio is 38,450,000 square feet, with 99.3% leased[87]. - The company has a total of 774 leased properties contributing to 100% of the ABR[87]. Financial Performance - The company reported a net income of $35,937 for the three months ended June 30, 2024, a decrease of $32,240 or 47.3% from $68,177 for the three months ended March 31, 2024[96]. - Lease revenues, net for the three months ended June 30, 2024, increased by $541, reaching $105,907, compared to $105,366 for the three months ended March 31, 2024, representing a 0.5% increase[92]. - Total operating expenses for the three months ended June 30, 2024, were $56,463, a decrease of $22,801 or 28.8% from $79,264 for the three months ended March 31, 2024[93]. - The company recognized a gain of $3,384 on the sale of real estate during the three months ended June 30, 2024, compared to a gain of $59,132 during the three months ended March 31, 2024, reflecting a 94.3% decrease[95]. - The provision for impairment of investment in rental properties was $3,852 for the three months ended June 30, 2024, significantly lower than $26,400 for the three months ended March 31, 2024, indicating an 85.4% decrease[93]. - The company reported a decrease in lease termination income, with no income recorded for the six months ended June 30, 2024, compared to $7.5 million for the same period in 2023[97]. - Net income for the six months ended June 30, 2024, was $104.1 million, a slight decrease of 0.2% from $104.4 million in the same period in 2023[104]. Debt and Financing - The total debt outstanding as of June 30, 2024, was $1.9 billion, with a Net Debt to Annualized Adjusted EBITDAre ratio of 5.1x[105]. - The company has $920.9 million of available capacity under its Revolving Credit Facility as of June 30, 2024[107]. - The company did not raise any equity from its ATM Program during the six months ended June 30, 2024, maintaining $400.0 million of capacity under the new program[110]. - The average outstanding borrowings decreased by $46.0 million since June 30, 2023, primarily through proceeds from dispositions[101]. - The one-month SOFR rate increased to 5.34% as of June 30, 2024, compared to 5.14% a year earlier[101]. - As of June 30, 2024, total unsecured debt amounted to $1,821,357,000, consisting of $900,000,000 in unsecured term loans and $850,000,000 in senior unsecured notes[112]. - The company’s interest expense for the six months ended June 30, 2024, was projected at $35,678,000[116]. - The company’s total cash flow from financing activities for the six months ended June 30, 2024, was a net outflow of $124,352,000, compared to a net outflow of $191,725,000 in 2023[119]. - The company believes it was in compliance with all covenants on outstanding borrowings as of June 30, 2024[113]. Investment Strategy - The company has sold 38 healthcare properties for gross proceeds of $262.2 million, representing about 50% of the planned healthcare portfolio simplification strategy[79]. - The first tranche of a portfolio sale of clinically-oriented healthcare assets generated gross proceeds of $30.8 million, with a second tranche expected to close in October 2024 for $49.5 million[79]. - The company recognized a $64.3 million gain on the sale of real estate and incurred $59.7 million in impairment charges related to the healthcare portfolio simplification strategy[79]. - The company’s strategic decision to sell clinically oriented healthcare properties aims to redeploy proceeds into core investment verticals without diluting per share results[79]. - The company is focused on a disciplined investment strategy and active asset management, including selective sales of properties[124]. Cash Flow and Dividends - The company had a net cash provided by operating activities of $145,039,000 for the six months ended June 30, 2024, compared to $136,604,000 for the same period in 2023, reflecting an increase due to a decrease in interest expense[119]. - Cash and cash equivalents totaled $19,900,000 as of June 30, 2024, down from $36,300,000 at the same date in 2023[119]. - The company paid dividends of $56,938,000 as of June 30, 2024, with a declared amount of $0.29 per common share and OP Unit[116]. Interest Rate and Currency Risk - The company entered into nine forward-starting interest rate swaps with a total notional amount of $460,000,000 during the three months ended June 30, 2024, to manage interest rate risk[118]. - A 1% increase in market interest rates would result in a decrease in the fair value of fixed-rate debt by approximately $61.8 million[133]. - A 1% increase or decrease in interest rates would lead to a corresponding $0.06 million increase or decrease in annual interest expense[133]. - A 10% increase or decrease in the exchange rate between the Canadian dollar and USD would result in a $7.3 million increase or decrease in unrealized foreign currency gain or loss[133]. - The company has not engaged in transactions in derivative financial instruments or derivative commodity instruments, except for interest rate swaps[133]. - The Canadian dollar borrowings under the Revolving Credit Facility act as a natural hedge against Canadian dollar investments[133]. - Unrealized foreign currency gains and losses do not impact cash flows from operations until settled[133]. - The company's Canadian investments are recorded at historical exchange rates, thus not impacted by changes in the value of the Canadian dollar[133]. - Interest rate swaps are designated as cash flow hedges for accounting purposes and reported at fair value[133].

Financial Data and Key Metrics - AFFO for Q2 2024 was $70 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 $1.41 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 $262 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 $247.8 million in investments during Q2, including $165.1 million in acquisitions at a 7.3% cap rate, $30.5 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 $408.6 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 $69.3 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 $400 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 $2 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]

Core Viewpoint - Broadstone Net Lease, Inc. (BNL) reported quarterly funds from operations (FFO) of $0.36 per share, exceeding the Zacks Consensus Estimate of $0.35 per share, and showing a year-over-year increase from $0.35 per share [1][2] Financial Performance - The company posted revenues of $105.91 million for the quarter ended June 2024, which was slightly below the Zacks Consensus Estimate by 0.04% and a decrease from $109.35 million year-over-year [2] - Over the last four quarters, Broadstone Net Lease has surpassed consensus FFO estimates three times, indicating a positive trend in FFO performance [2] Stock Performance - Broadstone Net Lease shares have increased approximately 4.7% since the beginning of the year, while the S&P 500 has gained 14.5%, indicating underperformance relative to the broader market [3] - The current consensus FFO estimate for the upcoming quarter is $0.35 on revenues of $107.36 million, and for the current fiscal year, it is $1.42 on revenues of $429.67 million [7] Industry Outlook - The REIT and Equity Trust - Residential industry, to which Broadstone Net Lease belongs, is currently ranked in the top 22% of over 250 Zacks industries, suggesting a favorable industry outlook [8] - Empirical research indicates a strong correlation between near-term stock movements and trends in estimate revisions, which could impact Broadstone Net Lease's stock performance [5][6]

Core Viewpoint - Broadstone Net Lease (BNL) is a diversified real estate investment trust (REIT) that offers an attractive yield and valuation, appealing to income-oriented investors [1] Group 1: Portfolio Composition - The largest exposure of BNL is in the industrial sector at 54.2%, followed by casual dining restaurants at 14.2%, healthcare at 13.4%, and retail at 11.9% [3] - BNL owns 759 properties with 200 tenants across 53 different industries, with a high occupancy rate of 99.2% and a collection of base rents at 99% [9] Group 2: Financial Performance and Outlook - BNL has a net debt to adjusted EBITDAre ratio of 4.8x, which is stable and reflects a trend of lower leverage over the past year [5] - The latest AFFO for the last two quarters was $0.36, resulting in an AFFO payout ratio of 80.6%, indicating that the current yield is well-supported [14] - Despite a challenging environment, BNL has increased its dividend by 1.8%, from $0.285 to $0.29, continuing a trend of semi-annual increases [6] Group 3: Market Position and Valuation - BNL is trading at a P/FFO of 10.67x, which is more attractive compared to peers like W. P. Carey at 11.55x and Essential Properties Realty Trust at 14.71x [15] - Analysts expect BNL's FFO to decline by -2.49% in 2024, but the company has historically beaten FFO estimates in 8 out of the last 12 quarters, suggesting potential for limited decline [15] Group 4: Strategic Initiatives - BNL is simplifying its healthcare portfolio, having disposed of 37 healthcare assets for gross proceeds of $251.7 million, which accounts for approximately 50% of the targeted assets [11][25] - The company aims to reduce healthcare exposure to below 10% of annual base rent, currently at 13.4% [17]

Company Participation and Announcements - Broadstone Net Lease, Inc. announced participation at Nareit's REITWeek: 2024 Investor Conference[3] - The company issued a press release on June 3, 2024, detailing recent business activities[3] - The press release dated June 3, 2024, is referenced as Exhibit 99.1[20] Financial Reporting and Compliance - Financial results and operational updates are included in Exhibit 99.1 of the Current Report[7] - The report is filed under the Securities Exchange Act of 1934, indicating compliance with regulatory requirements[10] - The information in Exhibit 99.1 is being "furnished" and not deemed "filed" under the Exchange Act[21] - The report was signed by John D. Callan, Jr., Senior Vice President, General Counsel and Secretary[16] Company Information - The registrant's telephone number for inquiries is 585 287-6500[13] - The company is incorporated in Maryland and has a Commission File Number of 001-39529[9] - The company is classified as an emerging growth company under the Securities Act[19]

Core Viewpoint - The real estate industry, particularly REITs, is facing challenges due to prolonged high interest rates, but Broadstone Net Lease (BNL) stands out positively due to its specific real estate focus and strong balance sheet [1][11]. Company Overview - BNL is a diversified, single-tenant operated REIT with a significant concentration in industrial properties (54.2%), followed by restaurant (14.2%), healthcare (13.4%), retail (11.9%), and office (6.3%) [1][2]. - The largest tenant, Roskam Foods, accounts for only 4.2% of the portfolio, indicating low dependency on any single tenant [2]. Strategic Positioning - BNL focuses on industrial properties near major transportation routes, enhancing logistics efficiency for tenants [2]. - The company is well-positioned for future acquisitions, with a significant increase in cash and equivalents from $19.5 million to over $221.7 million [4]. Balance Sheet Analysis - Total assets have slightly increased, while liabilities have decreased, including a $17 million reduction in the credit facility [3][4]. - The debt maturity schedule is well-managed, with unsecured term loans maturing between 2026-2029 at variable rates of approximately 6.00%-6.60% and fixed rates as low as 2.60% for the longest maturity [4]. Financial Performance - Revenue for Q1 2024 was stable at $105 million, with a $5 million reduction in expenses and a $400,000 decrease in interest expenses [5][6]. - The gain on the sale of real estate increased by $53 million due to healthcare simplification efforts [5]. Valuation Metrics - BNL is trading at a price to forward AFFO ratio of 10.5x, which is lower compared to peers like Realty Income (12.9x) and Agree Realty Corp (13.9x), suggesting it may be undervalued [9][10]. - The adjusted funds from operations (AFFO) for the quarter were $0.36, with a recent increase in the quarterly dividend from $0.28 to $0.285 [7]. Conclusion - BNL's strong balance sheet, significant liquidity, and diversification indicate potential for growth and expansion in the current market [11]. - The company is positioned to increase dividends, appealing to income-focused investors [11].

Investment Thesis - Broadstone Net Lease (BNL) offers an attractive dividend yield of approximately 7.5% with a low AFFO payout ratio of around 80%, indicating a strong value proposition that the market has underestimated [1][43]. Business Overview - BNL operates as a diversified REIT with 759 properties across 44 states and 4 Canadian provinces, leased to 200 tenants in 53 industries, totaling a rentable area of 37.6 million square feet [4]. - The company is smaller compared to its peers in the REIT sector and has experienced poor stock performance over the last three years [3]. Key Business Metrics - BNL's occupancy rate stands at 99.2%, significantly above the REIT median, showcasing the quality of its portfolio [13]. - The weighted average lease term (WALT) is 10.6 years, indicating strong lease stability [14]. - BNL has a weighted average rent escalation of 2.0%, which is beneficial for long-term cash flow growth [16]. Financial Stance - BNL's AFFO per share has shown modest growth, with a projected increase of 0.7% year-over-year for 2024, which is considered a weak point compared to peers [23][24]. - The company has initiated a healthcare portfolio simplification strategy, focusing on more productive segments such as industrial, restaurant, and retail properties [26][29]. Liquidity and Credit Metrics - BNL maintains a strong balance sheet with a BBB- credit rating and a fixed charge coverage ratio of 4.6x, indicating solid financial health [31]. - As of March 2024, BNL has $221.7 million in cash and cash equivalents, supported by an undrawn revolving credit facility of $926 million [34]. Valuation Outlook - BNL is currently trading at a P/FFO multiple of 10.2x, which is lower than its peers, suggesting potential for multiple appreciation as the company executes its portfolio reorganization strategy [36][37]. - The market has underestimated BNL's long-term cash flow generation ability, and there is a clear path to double-digit total returns through dividend growth and portfolio expansion [2][43].