Broadstone(BNL) - 2022 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported an AFFO of $63.4 million or$ 0.35 per share, representing approximately 6.1% growth over the same period last year [22] - AFFO per share was flat quarter-over-quarter compared to Q2, primarily due to revenue generated from Q2 acquisitions offset by a full quarter share count from equity raised in late Q2 [22] - The company reaffirmed its AFFO guidance range for fiscal year 2022 at $1.38 to$ 1.40 per diluted share, implying a growth rate of 6.1% at the midpoint over 2021 results [23] Business Line Data and Key Metrics Changes - The company invested approximately $205 million in 28 properties during Q3, with a weighted average initial cash cap rate of 6.5% and a weighted average GAAP cap rate of 7.9% [10] - Investments were predominantly in industrial opportunities at 86%, with the remaining volume in restaurants (6%), health care (5%), and retail (3%) [11] - The weighted average annual rent escalation for the portfolio was 2%, and the weighted average remaining lease term was 10.7 years [8] Market Data and Key Metrics Changes - As of September 30, 2022, all but 3 of the company's 790 properties were subject to a lease, occupied by 218 different commercial tenants across 56 industries [8] - The company noted that heightened levels of economic uncertainty are impacting capital markets, leading to a cautious external growth outlook for the remainder of the fourth quarter [12] Company Strategy and Development Direction - The company is focused on prudent capital allocation and disciplined selectivity in a challenging market environment [6] - The strategy includes conservative balance sheet management, disciplined underwriting, and proactive portfolio management as key pillars for success [7] - The company aims to capitalize on cap rate expansion opportunities in its pipeline, particularly in sectors where supply and demand characteristics are favorable [13] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the portfolio's performance, highlighting that 100% of base rents were collected during Q3 [6] - The company is monitoring economic conditions closely and remains committed to maintaining a conservative leverage profile with ample liquidity [21] - Management acknowledged the impact of inflation and rising interest rates on cost of capital, emphasizing a selective approach to acquisitions [18] Other Important Information - The company successfully released a health care property in Arizona under a new 21-year lease with an effective GAAP yield of 7.5% [9] - The company has approximately$ 902 million of acquisitions either closed or under control year-to-date, reaffirming its acquisition guidance range of $900 million to$ 1 billion for 2022 [12] Q&A Session Summary Question: Can you talk about the new operator for the Santa Cruz Hospital? - The new operator has extensive experience in hospital turnarounds and is expected to improve the property [27][28] Question: What are the economics of the new lease? - The new lease is a 21-year lease with an effective GAAP yield of 7.5%, including a variable free rent period based on the operator's ability to relicense the hospital [31] Question: Are there any other operators on the watch list? - The heightened credit watch list includes a few individual tenant names, with the Santa Cruz facility being a significant focus [32] Question: How is labor availability impacting underwriting? - Labor availability is a concern, particularly for lower-margin businesses, and is being closely monitored in future acquisitions [37][38] Question: What is the company's outlook on cap rates? - The company has seen cap rate expansion, particularly in industrial properties, and expects further movement as seller pricing expectations adjust [39][41] Question: What is the company's strategy for 2023? - The company plans to remain cautious and selective in acquisitions, with a focus on maintaining liquidity and assessing market conditions [51][52]