Broadstone Net Lease, Inc. (BNL) Q2 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call and Q&A session highlight strong financial performance, strategic partnerships, and growth plans, including a new project with Prologis and robust build-to-suit pipeline. Despite concerns about stock price and competition, management's commitment to growth and strategic investments, along with high occupancy and rent collection, suggest a positive outlook. The market cap suggests moderate sensitivity, supporting a 'Positive' prediction for stock price movement.

Key Financial Performance

AFFO per share for Q2 2025 $0.38, representing a 5.6% growth compared to 2024. This growth was driven by disciplined execution, progress on key tenant matters, and investment activity.

AFFO per share guidance for full year 2025 $1.48 to $1.50, reflecting 4.2% growth at the midpoint. This increase is attributed to confidence in the business and a commitment to long-term sustainable growth.

Build-to-suit pipeline $371.2 million in 8 projects, expected to generate $28 million of new incremental ABR through Q3 2026, representing 6.9% growth off current ABR. This growth is due to high-quality, derisked investments and strong tenant relationships.

New property acquisitions in 2025 $262.2 million, including $113.7 million in Q2. These acquisitions had a weighted average initial cash cap rate of 7.2% and were driven by strategic sale-leaseback transactions and tenant growth objectives.

Portfolio lease rate 99.1% at quarter end, with 99.6% of base rents collected. This reflects effective lease management and tenant monitoring.

Core G&A expenses for Q2 2025 $6.9 million, tracking in line with the low end of full-year expectations of $30 million to $31 million. This reflects disciplined cost management.

Bad debt reserve for 2025 Reduced to 75 basis points from 125 basis points, reflecting successful resolution of tenant matters and limited bad debt incurrence.

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Operating Highlights

Build-to-Suit Program: Expanded with 8 projects totaling $370 million, generating $28 million in new ABR by Q3 2026. Includes new projects for Palmer Logistics, AGCO Corporation, and Sprouts Farmers Market.

Regular Acquisitions: Closed $135 million in new property acquisitions with $234.6 million under control. Added tenants like Hobby Lobby and Academy Sports.

Geographic Expansion: New acquisitions and developments in Dallas MSA, California Central Valley, and Northeastern Pennsylvania.

Portfolio Repositioning: Reduced clinical healthcare exposure to 2.4% of ABR. Exited non-core assets to focus on industrial and retail investments.

Tenant Credit Management: Successfully managed tenant credit events, including At Home and Claire's, with no material concerns. Reduced bad debt reserve to 75 basis points.

Growth Strategy: Focused on build-to-suit developments and relationship-based acquisitions. Targeting mid-single-digit AFFO per share growth through 2027.

Capital Management: Avoided reliance on public equity markets for growth. Funded investments through asset sales and internal resources.

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Risk or Challenges

Tenant Credit Events: The company is dealing with tenant credit events, including At Home and Claire's, which have filed or are considering filing for Chapter 11 bankruptcy. These situations could impact rental income and portfolio stability. However, the company has received all rent owed year-to-date and believes the properties are strategically important to the tenants.

Lease Rollover Risk: The company has minimal near-term lease rollover risk, with only 3% of ABR rolling in 2026. However, it is actively managing leases to mitigate potential risks.

Equity Cost of Capital: The company has not raised significant equity in almost three years and is managing growth without reliance on public equity markets. This could limit its ability to fund future investments if market conditions do not improve.

Economic and Market Conditions: Higher interest rates and a competitive acquisitions environment are putting pressure on cap rates, which could impact the company's ability to source attractive deals.

Sector-Specific Risks: The company is monitoring risks in the home furnishing sector, consumer-centric tenants, and clinically oriented healthcare properties, which could be impacted by economic or sector-specific challenges.

Build-to-Suit Program Execution: While the build-to-suit program is a key growth strategy, its success depends on timely project completions and tenant commitments, which could face delays or challenges.

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Guidance & Outlook

AFFO Guidance for 2025: The company has raised its full-year 2025 AFFO guidance to $1.48 to $1.50 per share, representing 4.2% growth at the midpoint.

Build-to-Suit Pipeline: The company has 8 build-to-suit projects totaling $371.2 million in investments, expected to generate $28 million in incremental ABR through Q3 2026, representing 6.9% growth in current ABR.

Future Growth Projections: The company expects to deliver mid-single-digit AFFO per share growth in 2026, 2027, and beyond, supported by its build-to-suit pipeline and differentiated growth strategy.

Investment Activity for 2025: The company has invested $262.2 million in new property acquisitions, build-to-suit developments, and revenue-generating CapEx, with a robust pipeline of additional opportunities.

Acquisition Pipeline: The company has $234.6 million in new acquisitions under control and $4.5 million in commitments for revenue-generating CapEx.

Dividend Declaration: The Board of Directors declared a $0.29 dividend per share payable on October 15, 2025.

Capital Management: The company has managed growth without reliance on public equity markets, using retained cash flow, disposition proceeds, and its revolving credit facility.

2025 Investment Volume Guidance: Investment volume is expected to be between $500 million and $700 million, an increase of $100 million from prior guidance.

Disposition Volume Guidance: Disposition volume is expected to be between $50 million and $100 million.

Bad Debt Reserve Adjustment: The bad debt reserve for the remainder of 2025 has been reduced from 125 basis points to 75 basis points due to successful resolution of tenant matters.

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Shareholder Return Plan

Dividend Declaration: The Board of Directors declared a $0.29 dividend per share payable to holders of record as of September 30, 2025, on or before October 15, 2025.

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Key Q&A

Q:Do you still plan to announce $500 million of incremental developments in 2025? Are you seeing interest pick up as companies look to fortify their supply chains across the U.S.?

A:Yes, the $500 million goal is still in play, focusing on long-term growth. Any developments announced now would likely come online by late 2026 or early 2027. There is increased interest in build-to-suit activity due to supply chain fortification efforts and the administration's policies. Broadstone Net Lease (BNL) is also seeing more deals due to its growing reputation and relationships with developer partners.

Q:Can you provide additional color on the $236 million of acquisitions under control, including the cadence of closing, size of asset types, and expected initial cap rate?

A:The acquisitions are primarily industrial deals with an expected cap rate around 7%, consistent with prior deals. These deals are larger in size and are expected to close within the year, with a significant portion closing in the third quarter.

Q:Is the allowability of accelerated depreciation helping drive deals and your pipeline?

A:Accelerated depreciation has driven interest in certain asset classes like car washes, which benefit from tax advantages. However, it is not a major focus for BNL's industrial investments.

Q:Does the increased deal flow in your build-to-suit program prompt you to lean toward specific tenant types, property types, or geographies?

A:No, BNL aims to see as many deals as possible and then selects those offering the best risk-adjusted returns. They are not filtering deals at the top of the funnel but are working with developer partners to identify the best fits for long-term growth.

Q:How has increased interest in private transactions of industrial net lease portfolios affected pricing and opportunities for dispositions?

A:Competition in the traditional net lease acquisitions market has been fierce, with new entrants and increased supply. This has put pressure on cap rates, especially in industrial deals. However, BNL sees opportunities for attractive dispositions, particularly for assets in its build-to-suit pipeline, which could be sold at competitive yields.

Q:For the $600 million investment guide midpoint, can you provide a rough breakout of new acquisitions versus developments versus transitional capital for the second half of the year?

A:The split is approximately 60% regular acquisitions and 40% build-to-suit fundings, including transitional capital. This may shift slightly by year-end, but a more significant shift toward build-to-suit is expected in 2026.

Q:What is your target leverage, and would you go up to 6x?

A:BNL aims to stay comfortably below 6x leverage in the long term. While they are willing to approach 6x in the near term as a flexible lever, they do not intend to sustain that level over time.

Q:Why are companies opting for build-to-suit properties rather than using existing vacant buildings?

A:Build-to-suit properties cater to specific strategic needs, such as geographic location and facility requirements, which vacant buildings may not satisfy. BNL balances tenant needs with long-term considerations like re-tenanting and residual value.

Q:What lessons have you learned from your build-to-suit program, and how does competition vary by project size?

A:Patience and expertise are critical for the complex build-to-suit process. Competition varies; smaller projects may face less competition, while larger projects often involve fewer developers and funders, making competition more intense.

Q:What are your thoughts on bad debt guidance and its components?

A:The 50 basis points reduction in bad debt guidance is related to positive resolutions with Zips, At Home, and Claire's. The remaining 35 basis points account for prudence and unknown risks, but the portfolio is performing well overall.

Q:What is your weighted average cost of capital, and what investment spreads are you achieving?

A:The marginal cost of capital is in the high 4% to low 5% range for existing leverage capacity. New equity is less attractive, with an AFFO yield in the high 8% range. Investment spreads are neutral to slightly positive, depending on retained cash flow and revolver usage.

Q:Are you developing industry expertise for higher-end manufacturing build-to-suit projects?

A:BNL keeps the funnel wide open but is building a reputation in specialized areas like manufacturing and airplane hangars, which is attracting more deal flow.

Q:How many developer relationships are you working on, and how has that grown?

A:BNL has grown from working with one developer in early 2023 to six developers currently, with more in advanced discussions and further up the funnel.

Q:Are you seeing impacts on your food production and processing tenant base due to softness in the cold storage subsector?

A:While tariffs and costs have impacted tenants, BNL's cold storage facilities are owner-operated, and rent payments are not tied to operational performance, mitigating risk.

Q:Why was the distribution of retail versus industrial acquisitions more tilted toward industrial this quarter?

A:The shift is due to fierce competition in retail, particularly from new private players. BNL's long-term target is a 70-30 industrial-retail mix, and quarterly variations are expected.

Q:What are your thoughts on stock repurchases given the current stock price?

A:BNL is dissatisfied with its stock price and has a repurchase plan in place as a tool, though it hopes not to use it. The focus is on improving stock performance through strong execution and growth.

Q:How does the build-to-suit process work?

A:The process can involve direct negotiations with tenants or working with third-party developers who identify development needs. BNL engages in both approaches.

Q:Why are escalators for recent build-to-suit projects higher?

A:Higher escalators, typically between 2.5% and 3%, reflect market trends and the maturity of BNL's strategy, particularly in industrial deals.

Q:Review of Unclear Management Responses

A:Management avoided directly addressing why the stock price remains low despite strong performance and growth. They expressed dissatisfaction but did not provide specific actions or strategies to address the issue.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

BNL Transcript

Broadstone Net Lease, Inc. (BNL) Q3 2025 Earnings Call Transcript

Positive10-31

The earnings call presents a positive outlook with raised AFFO guidance, robust build-to-suit pipeline, and high lease rates. The Q&A section reflects confidence in future growth and financial stability, despite minor competition concerns. The strong investor interest in unsecured notes issuance and strategic financial management further bolster a positive sentiment. Given the company's market cap, the stock price is likely to experience a positive movement in the 2% to 8% range over the next two weeks.

Broadstone Net Lease, Inc. (BNL) Q2 2025 Earnings Call Transcript

Positive7-31

Earnings call transcript: Broadstone Net Lease misses Q1 2025 estimates

Unknown5-1

The earnings call presents a mixed outlook. Positive elements include a stable dividend, strong financial health with a solid credit facility, and a robust build-to-suit pipeline. However, concerns about tenant health due to tariffs, unclear management responses on bad debt, and lack of a share repurchase program weigh negatively. The market cap indicates moderate reactions, leading to a neutral stock price prediction.

Broadstone Net Lease, Inc. (BNL) Q1 2025 Earnings Call Transcript

Unknown5-1

The earnings call reflects a mixed outlook. While there are positive aspects like stable dividends and robust development pipelines, concerns persist regarding tariffs, healthcare tenant issues, and bad debt. The Q&A highlighted management's vague responses to specific risks, which may raise investor caution. The lack of a share repurchase program and unchanged financial metrics further contribute to a neutral sentiment. Given the company's market cap, the stock is likely to remain stable with minor fluctuations.

BNL Report

Broadstone Net Lease, Inc. 10-K

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2025-02-20

Broadstone Net Lease, Inc. 10-Q

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2024-07-31

Broadstone Net Lease, Inc. 10-Q

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2024-05-02

Broadstone Net Lease, Inc. 10-K

10-K

2024-02-22

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