Broadstone Net Lease Announces 2023 Results and its Healthcare Portfolio Simplification Strategy

VICTOR, N.Y.–(BUSINESS WIRE)–Broadstone Net Lease, Inc. (NYSE: BNL) (“BNL”, the “Company”, “we”, “our”, or “us”), today announced its operating results for the year and quarter ended December 31, 2023, and its healthcare portfolio simplification strategy.

MANAGEMENT COMMENTARY

“I am incredibly proud of our 2023 results, which we were able to deliver despite significant economic headwinds and capital market volatility through the year. We thoughtfully navigated a challenging environment by intentionally focusing on portfolio composition and quality which we believe will be the catalyst for increasing shareholder value as markets stabilize,” said John Moragne, BNL’s Chief Executive Officer. “We employed a disciplined and selective approach to all aspects of our investment cycle: intentionally evading risk and creatively sourcing investment opportunities that were created by the distressed lending environment and complementary to our core competencies and asset classes; maintaining a high quality portfolio of diversified properties with strong operating metrics; pruning tenant credit risk and lease rollover risk through selective dispositions with attractive spreads to redeployment yields; and maintaining a fortified investment grade balance sheet with low leverage at 5.0x, no material debt maturities until 2026, and ample liquidity to capitalize on additional investment opportunities. As a result, we were able to achieve $1.41 per share of AFFO, in line with the midpoint of our guidance range.”

FULL YEAR 2023 HIGHLIGHTS

FOURTH QUARTER 2023 HIGHLIGHTS

HEALTHCARE PORTFOLIO SIMPLIFICATION STRATEGY

Subsequent to quarter end, we made the strategic decision to sell our clinically-oriented healthcare properties, furthering our focus on core net lease assets in the industrial, retail, and restaurant sectors. The assets identified for sale are not customarily included in single tenant net lease portfolios and include clinical, surgical, and traditional MOB properties. These types of assets generally have shorter lease durations, greater landlord responsibilities, longer potential downtime upon lease maturity, and in some cases, greater potential challenges with tenants. The characteristics of these assets can make them attractive for a dedicated healthcare property investor and manager, but those same characteristics can make them challenging in the net lease space.

In total, we have identified 75 healthcare assets for sale that account for approximately 11% of total annualized base rent (“ABR”) with proceeds expected to be redeployed into our core industrial, retail, and restaurant assets. On a proforma basis as of December 31, 2023, the sale of all clinically-oriented healthcare properties will reduce our healthcare assets from 17.6% to 7.5% of our portfolio based on ABR, and our scheduled healthcare lease maturities through 2030 by 76.2%.

Of the properties identified for sale, we have executed contracts on 37 healthcare properties for approximately $253.0 million at a weighted average cash capitalization rate of 7.9%, representing a $0.8 million gain over original purchase price. The properties represent approximately $19.9 million or 5.1% of our December 31, 2023 ABR, 28.7% of our healthcare portfolio, and have a weighted average remaining lease term of 4.7 years. We anticipate the transactions will close during the first quarter of 2024. The remaining healthcare properties identified for sale are in varying stages of sales efforts.

Following the sales, the remaining assets in our healthcare portfolio will consist of consumer-centric medical properties that are customary for many publicly-traded net lease REITs, examples of which include plasma, dialysis, and veterinary services; assets with real estate fundamentals critical to the tenant’s business and little to no regulatory risk. Refer to our fourth quarter 2023 investor presentation for more detailed information regarding our healthcare portfolio simplification strategy.

As part of our healthcare portfolio simplification strategy, we made the decision to sell Green Valley Medical Center after the tenant failed to pay rent since October 2023 as the result of not meeting certain operational thresholds, and we are actively marketing the property through the date of this release. The decision resulted in us recognizing approximately $26.4 million of impairment during the quarter, and the tenant’s unpaid rents represent the only outstanding rents of our 99.2% quarterly rent collections. The tenant is responsible for all ongoing property costs under the terms of the lease.

In reference to BNL’s healthcare portfolio simplification strategy, John Moragne, BNL’s Chief Executive Officer, said, “As I’ve highlighted in recent quarters, we continue to focus more heavily on net lease industrial assets, while continuing to have deep conviction in net lease retail and restaurant assets, and have taken a hard look at property types that don’t fit within our investment thesis, particularly clinical, surgical, and traditional medical office building assets. Tenant bankruptcies, hands-on property management, heavier landlord responsibilities and costs, and messaging complexity in these properties has been an unnecessary distraction from our otherwise prudent and successful capital allocations. Our healthcare portfolio simplification strategy is an extension of our focus on portfolio quality and evolution, which we believe will result in meaningful value creation for investors.”

FFO, Core FFO, and AFFO are measures that are not calculated in accordance with accounting principles generally accepted in the United States of America (“GAAP”). See the Reconciliation of Non-GAAP Measures later in this press release.

REAL ESTATE PORTFOLIO UPDATE

As of December 31, 2023, we owned a diversified portfolio of 796 individual net leased commercial properties with 789 properties located in 44 U.S. states and seven properties located in four Canadian provinces, comprising approximately 38.3 million rentable square feet of operational space. As of December 31, 2023, all but two of our properties were subject to a lease, and our properties were occupied by 220 different commercial tenants, with no single tenant accounting for more than 4.1% of ABR. Properties subject to a lease represent 99.4% of our portfolio’s rentable square footage. The ABR weighted average lease term and ABR weighted average annual minimum rent increase, pursuant to leases on properties in the portfolio as of December 31, 2023, was 10.5 years and 2.0%, respectively.

BALANCE SHEET AND CAPITAL MARKETS ACTIVITIES

As of December 31, 2023, we had total outstanding debt of $1.9 billion, Net Debt of $1.9 billion, and a Leverage Ratio of 5.0x. We had $909.6 million of available capacity on our revolving credit facility as of year end, and have no material debt maturities until 2026.

We did not raise any equity during the quarter and year, and had approximately $145.4 million of capacity remaining on our ATM Program as of December 31, 2023.

DISTRIBUTIONS

At its February 16, 2024, meeting, our board of directors declared a quarterly dividend of $0.285 per common share and OP Unit to holders of record as of March 29, 2024, payable on or before April 15, 2024.

2024 GUIDANCE

For 2024, BNL expects to report AFFO of $1.41 per diluted share.

The guidance is based on the following key assumptions:

Our per share results are sensitive to both the timing and amount of real estate investments, property dispositions, and capital markets activities that occur throughout the year.

The Company does not provide guidance for the most comparable GAAP financial measure, net income, or a reconciliation of the forward-looking non-GAAP financial measure of AFFO to net income computed in accordance with GAAP, because it is unable to reasonably predict, without unreasonable efforts, certain items that would be contained in the GAAP measure, including items that are not indicative of the Company’s ongoing operations, including, without limitation, potential impairments of real estate assets, net gain/loss on dispositions of real estate assets, changes in allowance for credit losses, and stock-based compensation expense. These items are uncertain, depend on various factors, and could have a material impact on the Company’s GAAP results for the guidance periods.

CONFERENCE CALL AND WEBCAST

The company will host its fourth quarter earnings conference call and audio webcast on Thursday, February 22, 2024, at 11:00 a.m. Eastern Time.

To access the live webcast, which will be available in listen-only mode, please visit: https://events.q4inc.com/attendee/958546087. If you prefer to listen via phone, U.S. participants may dial: 1-833-470-1428 (toll free) or 1-404-975-4839 (local), access code 822981. International access numbers are viewable here: https://www.netroadshow.com/events/global-numbers?confId=59986.

A replay of the conference call webcast will be available approximately one hour after the conclusion of the live broadcast. To listen to a replay of the call via the web, which will be available for one year, please visit: https://investors.bnl.broadstone.com.

About Broadstone Net Lease, Inc.

BNL is an industrial-focused, diversified net lease REIT that invests in primarily single-tenant commercial real estate properties that are net leased on a long-term basis to a diversified group of tenants. Utilizing an investment strategy underpinned by strong fundamental credit analysis and prudent real estate underwriting, as of December 31, 2023, BNL’s diversified portfolio consisted of 796 individual net leased commercial properties with 789 properties located in 44 U.S. states and seven properties located in four Canadian provinces across the industrial, healthcare, restaurant, retail, and office property types.

Forward-Looking Statements

This press release contains “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, regarding, among other things, our plans, strategies, and prospects, both business and financial. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as “outlook,” “potential,” “may,” “will,” “should,” “could,” “seeks,” “approximately,” “projects,” “predicts,” “expect,” “intends,” “anticipates,” “estimates,” “plans,” “would be,” “believes,” “continues,” or the negative version of these words or other comparable words. Forward-looking statements, including our 2023 guidance and assumptions, involve known and unknown risks and uncertainties, which may cause BNL’s actual future results to differ materially from expected results, including, without limitation, risks and uncertainties related to general economic conditions, including but not limited to increases in the rate of inflation and/or interest rates, local real estate conditions, tenant financial health, property investments and acquisitions, and the timing and uncertainty of completing these property investments and acquisitions, and uncertainties regarding future distributions to our stockholders. These and other risks, assumptions, and uncertainties are described in Item 1A “Risk Factors” of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, which BNL expects to file with the SEC on February 22, 2024, which you are encouraged to read, and will be available on the SEC’s website at www.sec.gov. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those indicated or anticipated by such forward-looking statements. Accordingly, you are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they are made. The Company assumes no obligation to, and does not currently intend to, update any forward-looking statements after the date of this press release, whether as a result of new information, future events, changes in assumptions, or otherwise.

Notice Regarding Non-GAAP Financial Measures

In addition to our reported results and net earnings per diluted share, which are financial measures presented in accordance with GAAP, this press release contains and may refer to certain non-GAAP financial measures, including Funds from Operations (“FFO”), Core Funds From Operations (“Core FFO”), Adjusted Funds from Operations (“AFFO”), Net Debt, and Net Debt to Annualized Adjusted EBITDAre. We believe the use of FFO, Core FFO, and AFFO are useful to investors because they are widely accepted industry measures used by analysts and investors to compare the operating performance of REITs. FFO, Core FFO, and AFFO should not be considered alternatives to net income as a performance measure or to cash flows from operations, as reported on our statement of cash flows, or as a liquidity measure, and should be considered in addition to, and not in lieu of, GAAP financial measures. We believe presenting Net Debt to Annualized Adjusted EBITDAre is useful to investors because it provides information about gross debt less cash and cash equivalents, which could be used to repay debt, compared to our performance as measured using Annualized Adjusted EBITDAre. You should not consider our Annualized Adjusted EBITDAre as an alternative to net income or cash flows from operating activities determined in accordance with GAAP. A reconciliation of non-GAAP measures to the most directly comparable GAAP financial measure and statements of why management believes these measures are useful to investors are included below.

Contacts

Company:
Brent Maedl

Director, Corporate Finance & Investor Relations

[email protected]
585.382.8507

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