Broadstone Net Lease: Meaningful Reorganization Progress And Strong Metrics Make It Buyable

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].