Broadstone Net Lease, Inc. Q3 FY2024 earnings call

Clinical Healthcare Simplification - Successfully completed sales of 10 clinical healthcare assets, reducing clinical exposure to ~4% of ABR. Dispositions of remaining clinical assets will continue into 2025 and beyond due to lease duration, space utilization, or credit risk. ### Build-to-Suit Strategy - Reached substantial completion on UNFI build-to-suit in Sarasota, FL (1 million sq ft, 7.2% initial cash yield, 15-year lease). $405 million in committed development with mid to high 7% initial cash yields and over 9% straight line yields. Closed on two MRO hangers for Sierra Nevada Corporation, with total cost ~$114 million. ### Asset Management - Actively evaluating lease rollovers through 2026, secured two new leases with 13-year terms and 100% recapture. Year-to-date, 6 lease extensions/renewals at or above 100% recapture. Three vacant properties with higher operating expenses, working towards optimal sale/lease outcomes.

The clinical healthcare simplification strategy led to reducing total clinical exposure below 10%, with clinical assets at approximately 4% of ABR. The 6% of assets including animal health, medtail, retail, and life science assets remain in the portfolio. The build-to-suit segment has $405 million in committed development with initial cash yields in the mid to high 7% range and straight line yields exceeding 9%. During the quarter, $93.9 million of investment opportunities were closed, including $69.3 million of new acquisitions with a weighted average cap rate of 7.2% and $24.6 million of fundings related to the UNFI build-to-suit.

AFFO Guidance - Maintaining AFFO guidance range of $1.41 to $1.43 per share. ### Investment Guidance - Lowered high end of investment guidance from $700 million to $600 million. ### Build-to-Suit Pipeline - Confident of adding at least $33 million of ABR from existing built-to-suit pipeline in Q4 2025 and first half of 2026, maintaining leverage below 6 times.

Credit Risk - Incremental pockets of credit risk in consumer-centric industries and entities with less flexible capital structures. ### Market Uncertainty - Cautious of regular way transaction market with disconnect between pricing expectations and quality of opportunities. ### Tenant Risks - Concerns about industries sensitive to discretionary consumer spending and tenants with floating rate debt or near-term debt maturities.

Q: What's keeping you from raising AFFO guidance at this point?

A: Anticipated tenant credit events and additional carrying costs on vacant assets in Q4, with confidence in resolving these in Q4 to be on better footing in Q1.

Q: Discuss volumes and cap rates in traditional net lease assets?

A: Not a lot of attractive regular way transactions, risk-adjusted returns not working, allocating capital to build-to-suit pipeline instead.

Q: Talk about acquisitions in the quarter and annual bumps?

A: Majority of acquisitions in industrial, which commands higher aggregate rent bumps, aligning with four core building blocks including 2% weighted average rent bumps.

Q: Appetite for remaining healthcare assets?

A: Interest from individual, discreet buyers, taking time to maintain value through lease extensions, tenant improvements, etc.

Q: Equity capital for transactions?

A: $39 million equity forward issued, pleased with opportunity but cautious as not currently needing large equity raises.

Q: Build-to-suit opportunities with new tenants?

A: Open to new tenants, not doing speculative development, using risk mitigants in deals to avoid traditional development risk.

Q: Risks seen?

A: Usual suspects like Red Lobster, at home, and clinical healthcare operators with credit issues.

Q: Build-to-suit funding and origination?

A: Predominantly industrial projects, updated schedules to be released regularly, origination from direct developer or tenant relationships.