Q3 2020 Broadstone Net Lease Inc Earnings Call

November 6, 2020

Hello, Welcome to watch styles net leases so.

Operator: Hello, Welcome to Broadstone Net Lease's Q3 2020 Earnings Conference Call. My name is Kate, and I will be your operator today. Please note that today's call is being recorded. I would now like to turn the call over to Kevin Fennell, Senior Vice President of Capital Markets at Broadstone. Please go ahead.

Third quarter 2020 earnings Conference call. My name is Kate and I will be your operator today. Please note today's call is being recorded I would now like to turn the call over to Kevin funnel.

No Vice president of capital markets abroad. So.

Go ahead.

Thank you for joining us today for <unk>, So net leases third quarter 2020 earnings call.

Kevin Fennell: Thank you for joining us today for Broadstone Net Lease's Q3 2020 earnings call. On today's call, you will hear from our CEO, Chris Czarnecki, and our CFO, Ryan Albano. Before we begin, we want to remind everyone that the following presentation contains forward-looking statements which are subject to risks and uncertainties, including but not limited to, those related to the ongoing COVID-19 pandemic. Should one or more of these risks or uncertainties materialize, our actual results may differ materially. We caution you not to place undue reliance on these forward-looking statements and refer you to our SEC filings, including our Form 10-K for the year ended 31 December 2019, Form 10-Q for the quarter ended 30 June 2020, and other filings with the SEC for a more detailed discussion of the risk factors that may cause such differences.

Kevin Fennell: Thank you for joining us today for Broadstone Net Lease's Q3 2020 Earnings Call. On today's call, you will hear from our CEO, Chris Czarnecki, and our CFO, Ryan Albano. Before we begin, we want to remind everyone that the following presentation contains forward-looking statements which are subject to risks and uncertainties, including but not limited to, those related to the ongoing COVID-19 pandemic. Should one or more of these risks or uncertainties materialize, our actual results may differ materially. We caution you not to place undue reliance on these forward-looking statements and refer you to our SEC filings, including our Form 10-K for the year ended 31 December 2019, Form 10-Q for the quarter ended 30 June 2020, and other filings with the SEC for a more detailed discussion of the risk factors that may cause such differences.

Today's call you will hear from Mark CEO, Chris Darden <unk>.

Our CFO write up on it.

Before we begin we want to remind everyone that the following presentation contains forward looking statements, which are subject to risks and uncertainties.

We didn't but not limited to those related to the ongoing over 19 pandemic.

If one or more of these risks or uncertainties materialize or actual results may differ materially.

We caution you not to place undue reliance on these forward looking statements and refer you to our SEC filings, including our form 10-K for the year ended December 31st 2019.

Thank you for the quarter ended June Thirtyth 2020, and other filings with the FCC for a more detailed discussion of the risk factors that may cause such differences.

Kevin Fennell: Any forward-looking statements provided during this conference call are only made as of the date of this call. I will now turn the call over to our CEO, Chris Czarnecki.

Any forward looking statements provided during this conference call are only made as of the date of this call.

Now I'll turn the call over to our CEO Chris.

Chris Czarnecki: Thank you, Kevin, and welcome everyone to Broadstone Net Lease's first earnings call as a publicly traded company. After our recently completed IPO, we are excited to have an expanded shareholder base, lower leverage, and enhanced liquidity, which we believe positions us to grow our portfolio through attractive and accretive property acquisition opportunities. Our team intends to continue executing on our proven diversified investment strategy and remains focused on creating long-term value for all of our shareholders. I also want to take a moment to recognize all of the employees of Broadstone that have done such a tremendous job running the business during a very challenging period. The team has continued to execute at a high level, and it is very excited about the future of the company.

Thank you, Kevin and welcome everyone to broad so not least his first earnings call as a publicly traded company.

After our recently completed IPO.

We're excited to have an expanded shareholder base lower leverage and enhance liquidity, which we believe positions us to grow our portfolio through attractive and accretive property acquisition opportunities.

Our team intends to continue executing on our proven diversified investment strategy and remains focused on creating long term value for all of our shareholders.

I also want to take a moment to recognize all of the employees abroad stone that have done such a tremendous job running the business during a very challenging period.

The team has continued to execute at a high level and it's very it is very excited about the future of the company.

Chris Czarnecki: Our corporate accomplishments and portfolio performance results are a testament to the strength of our established platform, experienced management team, and differentiated investment strategy. Our initial public offering closed on 21 September, raising net proceeds of $588.2 million after accounting for the underwriter's election to issue 3.5 million additional shares on 20 October. We used the proceeds to repay $456.7 million of debt and related accrued interest, thus significantly reducing our leverage ratio, and placed roughly $132 million of cash on the balance sheet. In conjunction with the IPO, we also closed on a new $900 million unsecured revolving credit facility. All these factors further solidify our investment grade balance sheet and position the company with ample liquidity to pursue attractive growth opportunities, which I'll discuss more in a moment.

Our corporate accomplishments and portfolio performance results are a testament to the strength of our established platform experienced management team and differentiated investment strategy.

Our initial public offering closed on September 20, Onest, raising net proceeds of $588.2 million after accounting for the underwriters election to issue 3.5 million additional shares on October Twentyth.

We use the proceeds to repay 456.7 million of debt and related accrued interest, thus significantly reducing our leverage ratio and placed roughly $132 million of cash on the balance sheet.

In conjunction with the IPO, we also closed on a new $900 million unsecured revolving credit facility.

All of these factors to further solidify our investment grade balance sheet and position the company with ample liquidity to pursue attractive growth opportunities, which I'll discuss more in a moment.

Aside from the IPO business activity in the quarter was relatively muted.

Chris Czarnecki: Aside from the IPO, business activity in the quarter was relatively muted, which is a positive assessment given the market backdrop created by the ongoing pandemic. As a result of our thoughtfully constructed and highly diversified portfolio, we collected approximately 97.9% of Q3 rents and 98.5% of rents to date for October. We also collected 100% of the deferred rent that was owed to us during Q3. During the quarter, we also sold 5 assets for net proceeds of $9.4 million, bringing total year-to-date dispositions to 18 assets for net proceeds of $54.8 million. For the properties that were leased, the weighted average disposition cap rate was 6.8%. Sales during the quarter included 3 vacant properties and 2 occupied quick service restaurants.

Which is a positive assessment given the market backdrop created by the ongoing pandemic.

As a result of our thoughtfully constructed and highly diversified portfolio, we collected approximately 97.9%.

Third quarter rents and 98.5% of rents to date for October.

We also collected 100% of the deferred rent that was owed to us during the third quarter.

During the quarter. We also sold five assets for net proceeds of $9.4 million.

Bringing total year to date dispositions to 18 assets for net proceeds of 54.8 million.

Where the properties that were leased the weighted average disposition cap rate was 6.8%.

Sales during the quarter included three vacant properties and two occupied quick service restaurants.

On the leasing front in Q3, we completed two lease extensions on health care assets four or five in three years.

Chris Czarnecki: On the leasing front, in Q3, we completed 2 lease extensions on healthcare assets for 5 and 3 years on leases that were previously expiring at the end of 2020 and mid-2021, respectively. Rents for these properties continue at the same scheduled rates and increase annually during the extension period. After quarter end, we also executed separate 10-year lease extensions at two of our properties leased to Tractor Supply, who continues to be one of our top 20 tenants. A quick note on Tractor Supply. In October, Moody's and S&P assigned the company investment grade ratings of Baa1 and BBB, respectively. While we do not place particular emphasis on investment grade credit ratings, it is nice to see third-party validation of a business model that we've been investing in since 2016.

Leases that were previously expiring at the end of 2020 and mid 2021, respectively.

Rents for these properties continue at the same scheduled rates an increase annually during the extension period.

After quarter end, we also executed separate 10 year lease extensions.

Two of our properties leased to tractor supply who continues to be one of our top 20 tenants.

A quick note on tractor supply in October Moodys, and S&P assigned the company investment grade ratings, BW, one and triple B, respectively.

While we do not placed particular emphasis and investment grade credit ratings. It is nice to see third party validation of a business model that we've been investing in since 2016.

Well, we are not actively acquiring properties during the quarter, we invested 3.5 million in meaningful expansions and improvements for existing tenants in exchange for additional rent.

Chris Czarnecki: While we are not actively acquiring properties during the quarter, we invested $3.5 million in meaningful expansions and improvements for existing tenants in exchange for additional rent. This brings our year-to-date total of other investment activity to $7.2 million, on which we will generate a 7.4% weighted average return. We continue to work with our tenants on additional expansions and improvements to our assets and view this as an accretive way to deploy capital into Q4 and 2021. As of 30 September, our portfolio includes 627 properties across 41 states and one province of Canada. The portfolio maintained 99.6% occupancy and has a weighted average remaining lease term of 10.8 years with 2.1% in place annual rent escalators.

This brings our year to date total other investment activity to $7.2 million on which we will generate a 7.4% weighted average return.

We continue to work with our tenants one additional expansions and improvements to our assets and view this as an accretive way to deploy capital into Q4 and 2021.

As of September Thirtyth, our portfolio includes 627 properties across 41 States and one province in Canada.

The portfolio maintained 99.6% occupancy and has a weighted average remaining lease term of 10.8 years with 2.1% in place annual rent escalators.

Our portfolio is and will continue to be diversified across multiple asset types, which primarily include industrial health care restaurant retail and office properties.

Chris Czarnecki: Our portfolio is and will continue to be diversified across multiple asset types, which primarily include industrial, healthcare, restaurant, retail, and office properties. We believe our strategy delivers attractive risk-adjusted returns, multiple avenues for growth, and defensive attributes afforded through portfolio diversification that help provide stability in an ever-changing world. Leading up to the IPO, our acquisitions team began advancing their actionable pipeline, sourcing investment opportunities across multiple channels and asset types. I'm happy with the progress that we have made, and as of today, we have entered into two purchase contracts for $33 million of investments with an initial weighted average cash capitalization rate of 7%. We expect both transactions to close during Q4. The properties will have an expected weighted average remaining lease term of approximately 18.2 years and weighted average annual rent increases of approximately 1.9%.

We believe our strategy delivers attractive risk adjusted returns.

Multiple avenues for growth.

And defensive attributes afforded through portfolio diversification, but help provide stability in an ever changing world.

Leading up to the IPO, our acquisitions team began advancing their actionable pipeline sourcing investment opportunities across multiple channels and asset types.

I'm happy with the progress that we've made and as of today, we have entered into to purchase contracts for $33 million of investments with an initial weighted average cash capitalization rate of 7%.

We expect both transactions to close during the fourth quarter.

The properties will have an expected weighted average remaining lease term of approximately 18.2 years.

And weighted average annual rent increases of approximately 1.9%.

We also have $64 million of other properties under letter of intent.

Chris Czarnecki: We also have $64 million of other properties under letter of intent, which if successfully brought to conclusion, represent attractive acquisition opportunities likely to close in Q4 or Q1 2021. The team has done a great job quickly building a pipeline of attractive investments after the IPO, and our momentum continues to build heading into 2021. As we continue to pursue additional investment opportunities, we do remain cautious on certain asset types that we believe could be more negatively affected by the ongoing pandemic, notably office and casual dining. We hold the same cautious views on assets within our existing portfolio, where we maintain a heightened level of attention on these assets and tenants.

Which if successfully brought to conclusion represent attractive acquisition opportunities likely to close in Q4 or Q1 2021.

The team has done a great job quickly building a pipeline of attractive investments after the IPO and our momentum continues to build heading into 2021.

As we continue to pursue additional investment opportunities, we do remain cautious on certain asset types that we believe could be more negatively affected by the ongoing pandemic, notably office in casual dining.

We hold the same cautious views on assets within our existing portfolio, where we maintain a heightened level of attention on these assets and tenants.

Importantly, our diversified strategy an experienced team ensured that we have the flexibility to pursue growth, where we find attractive risk adjusted returns while also limiting the negative effects of disruption occurring within any single sector or tenant.

Chris Czarnecki: Importantly, our diversified strategy and experienced team ensure that we have the flexibility to pursue growth where we find attractive risk-adjusted returns, while also limiting the negative effects of disruption occurring within any single sector or tenant. This quarter's been one of great significance for Broadstone Net Lease, and I'm proud of what our team has accomplished during these unprecedented times and excited for the opportunities we have ahead of us. We remain focused on generating attractive risk-adjusted returns while creating long-term value for our shareholders. I would now like to turn the call over to Ryan to go over the results of the quarter in greater detail.

This quarter's been what a great significance rebroadcast or not least and I'm proud of what our team has accomplished during these unprecedented times and excited for the opportunities. We have ahead of us.

We remain focused on generating attractive risk adjusted returns, while creating long term value for our shareholders.

I would now like to turn the call over to Ryan to go over the results of the quarter in greater detail.

Thanks, Chris.

Ryan Albano: Thanks, Chris. I'd like to first echo your comments and recognize everybody on the Broadstone team for their countless efforts and ability to adapt to near constant change during this year. In addition to seamlessly running the business remotely, we completed a major milestone with the IPO, and I know everyone is focused on continuing to execute on our proven strategy moving forward. Before diving into activities in the quarter, I'd like to provide additional details on our financial profile after the IPO. As Chris indicated, we significantly reduced leverage and strengthened our balance sheet using IPO proceeds. After accounting for the partial overallotment, we reduced our leverage ratio as measured by net debt to adjusted EBITDA for real estate from 7.2x as of Q2 2020 to 5x.

I'd like to first Echo your comments and recognized everybody on the broad stone team for their countless efforts and ability to adapt to near constant change during this year.

In addition to seamlessly running the business remotely we completed a major milestone with the IPO and I know everyone is focused on continuing to execute on our proven strategy moving forward.

Before diving into activities in the quarter I'd like to provide additional details on our financial profile after the IPO.

As Chris indicated, we significantly reduced leverage and strengthen their balance sheet using IPO proceeds after.

After accounting for the partial over allotment, we reduced our leverage ratio as measured by net debt to adjusted EBITDA for real estate from 7.2 times as of Q2 2022 five times.

We also increased our revolving credit facility to $900 million with a new three year term plus an additional year available at our option, resulting in a weighted average debt maturity of approximately five years with no significant debt maturities until 2023.

Ryan Albano: We also increased our revolving credit facility to $900 million with a new three-year term, plus an additional year available at our option, resulting in a weighted average debt maturity of approximately five years with no significant debt maturities until 2023. Given over $150 million of cash available to deploy, zero balance on our revolver, and a target leverage ratio of less than six times, we believe we have sufficient liquidity and financial flexibility to pursue our growth objectives in the near term. Moving to our quarterly performance update, I'd like to first give an update on our collection activity and the rent relief request we granted during Q2 at the onset of the pandemic.

Given over $150 million of cash available to deploy your old balance on our revolver any target leverage ratio of less than six times, we believe we have sufficient liquidity.

And financial flexibility to pursue our growth objectives in the near term.

Moving to our quarterly performance update I'd like to first give an update on our collection activity and the rent relief requests we granted during Q2 at the onset of the pandemic.

Ryan Albano: As Chris mentioned, as of today, we collected 97.9% of Q3 rent, which compares favorably to the already strong collection results we saw in Q2 of 95.5%. This trend continued into October, for which we collected 98.5% of base rent owed. As a reminder, we granted 14 short-term partial deferrals in Q2, and as of 30 September, the deferral periods for each of those agreements have expired. During the Q3, in addition to collecting 100% of base rent owed from each of these tenants, we also received 100% of previously deferred rent that was scheduled for repayment in the quarter. As of 30 September, we are scheduled to receive approximately $1.8 million of remaining deferred rent over a weighted average period of 4.2 months.

As Chris mentioned as of today, we collected 97.9% of third quarter, Ryan, which compares favorably to the already strong collection results. We saw in Q2 of 95.5%.

This trend continued into October for which we collected 98.5% of base rent owed.

As a reminder, we granted 14 short term partial deferrals in Q2 and as of September Thirtyth, the deferral periods for each of those agreements have expired.

During the third quarter. In addition to collecting 100% of base rent owed from each of these tenants. We also received a 100% of previously deferred rent that was scheduled for repayment in the quarter.

As of September Thirtyth.

We are scheduled to receive approximately 1.8 million of remaining deferred rent over a weighted average period of 4.2 months.

In exchange for three additional years of lease term. We also entered into a partial rent abatement agreement in Q2 with a casual dining tenant that runs through January of 2021 before returning to previously scheduled rent.

Ryan Albano: In exchange for three additional years of lease term, we also entered into a partial rent abatement agreement in Q2 with a casual dining tenant that runs through January 2021 before returning to previously scheduled rent. The tenant is required to pay a minimum amount of base rent, which increases during the abatement period, as well as additional base rent based upon sales if certain thresholds are met or exceeded. The additional base rent clause became effective in August, and we have received approximately $0.2 million of additional rent pursuant to that clause for August and September combined. One final point on collection activity during the quarter relates to Art Van Furniture.

The tenant is required to pay a minimum amount of base rent, which increases during the abatement period as well as additional base rent based upon sales of certain thresholds are met or exceeded.

The additional base rent clause became effective in August and we have received approximately $2.2 million of additional rent pursuant to that cause for August and September combined.

One final point on collection activity during the quarter relates to art van furniture, we resolved our clean in the art in bankruptcy proceedings and received $2.35 million, representing approximately 78% of our total post petition claim were 86.5% of the total post petition.

Ryan Albano: We resolved our claim in the Art Van bankruptcy proceedings and received $2.35 million, representing approximately 78% of our total post-petition claim or 86.5% of the total post-petition base rent owed. As we have previously discussed, we retenanted six of our 10 former Art Van locations under long-term leases with American Signature, who operates the Value City Furniture brand. In addition to those six properties, we retenanted one of the remaining four properties under a long-term lease earlier this week. We continue to market for re-lease and evaluate various alternatives for the three remaining locations. During the quarter, we recognized an aggregate $14.7 million impairment provision on three properties. Two of the properties are former Art Van locations, and one property was a vacant medical office building that we sold during the quarter.

Base rent owed.

As we have previously discussed we retenanted six of our 10, former urban locations under long term leases with American signature who operates the value city furniture brand.

In addition to those six properties, we retenanted one of the remaining four properties under a long term lease earlier this week.

We continue to market for release and evaluate various alternatives for the three remaining locations.

During the quarter, we recognized an aggregate $14.7 million impairment provision on three properties.

Two of the properties are former arpin locations and one property was a vacant medical office building that we sold during the quarter.

Ryan Albano: The length and severity of the pandemic has resulted in negative adjustments to our re-leasing and potential sale assumptions. The remaining carrying value on the two Art Van locations is approximately $9.4 million as of September 30. As I previously mentioned, we continue to market and evaluate the most optimal solutions for these assets going forward. Moving to our earnings results, we reported AFFO of $47.1 million in Q3, representing a 21% increase over the same period in 2019. The increase was primarily a result of the contribution from a large acquisition that we closed in late August 2019. On a per share basis, AFFO was $0.38 per diluted share, an increase of 2.7% as compared to Q3 of 2019.

The length and severity of the pandemic has resulted in negative adjustments to our releasing and potential sell assumptions.

The remaining carrying value on that to our advantage locations is approximately $9.4 million as of September thirtyth.

And as I previously mentioned, we continue to market and evaluate the most optimal suit solutions for these assets going forward.

Moving to our earnings results, we reported FFO of $47.1 million in the third quarter, representing a 21% increase over the same period in 2019.

The increase was primarily a result of the contribution from a large acquisition that we closed in late August of 2019.

On a per share basis, if a FFO was 38 cents per diluted share an increase of 2.7% as compared to Q3 of 2019.

Ryan Albano: Per share results were lower than headline AFFO growth given the impact of additional shares. For Q3, we incurred $7.2 million of G&A expense. While we will likely incur incremental public company costs in the near term, we expect to achieve economies of scale with respect to G&A expenses over time as our portfolio growth outpaces our cost structure. Finally, I'd like to provide an update on our dividend. We previously declared a dividend of $0.135 on 4 August that was paid to shareholders and OP unit holders of record as of 30 September in October. At our 5 November 2020 board meeting, our board of directors set a $0.25 distribution per common share and OP unit holders of record as of 31 December 2020, payable on or before 15 January 2021.

Our share results were lower than headline and football growth given the impact of additional shares.

For the third quarter, we incurred $7.2 million of DNA expense.

While we will likely incur incremental public company costs in the near term, we expect to achieve economies of scale with respect to DNA expenses overtime as our portfolio growth outpaces our cost structure.

Finally, I'd like to provide an update on our dividend.

We previously declared a dividend of 13 and a half cent on August 4th.

That was paid to shareholders in LP unit holders of record as of September Thirtyth in October.

At our November five 2020 Board meeting our board of Directors said, a 25 cent distribution per common share in Ob unit to holders of record as of December 30, Onest 2020 payable on or before January 15 2021.

With that I will turn it back over to Chris.

Ryan Albano: With that, I will turn it back over to Chris.

Thank you Ryan our portfolio has proven its resiliency in the face of unprecedented uncertainty and after completing the IPO. We're excited to turn our attention to the attractive opportunity set that we believe exist in the net lease market.

Chris Czarnecki: Thank you, Ryan. Our portfolio has proven its resiliency in the face of unprecedented uncertainty, and after completing the IPO, we're excited to turn our attention to the attractive opportunity set that we believe exists in the net lease market. We continue to advance opportunities through our investment process, and we believe we are well-positioned to exceed our initial Q4 acquisition expectations in the same diversified manner as we have employed historically. This concludes our prepared remarks, and we'll now open up the line for questions.

We continue to advance opportunities through our investment process.

We believe we are well positioned to exceed our initial Q4 acquisition expectations and the same diversified manner as we have employed historically.

This concludes our prepared remarks, and we'll now open the line for questions.

We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.

Operator 2: We will now begin the question and answer session. To ask a question, you may press Star then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press Star then two. At this time, we will pause momentarily to assemble our roster. Our first question is from John Kim from BMO Capital Markets. Go ahead.

Operator: We will now begin the question and answer session. To ask a question, you may press Star then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press Star then two. At this time, we will pause momentarily to assemble our roster. Our first question is from John Kim from BMO Capital Markets. Go ahead.

Our first question is from John Kim from BMO capital markets go ahead.

Thanks, Scott and good afternoon.

John Kim: Thanks. Good afternoon. I guess as of today, it looks like there's gonna be a Biden presidency with a split government. I was just wondering if you had any comments as far as what you think this means in terms of the transaction market with the likelihood that 1031 exchange will remain intact.

I guess as it today looks like there's going to be invited presidency, but governments and I was just wondering if you had any comments as far as what he can does mean.

In terms of the transaction market with the like that at 10 31 will remain intact.

Sure Hey, John Good to talk to you. Thank you for the question.

Chris Czarnecki: Sure. Hey, John. Great to talk to you. Thank you for the question. I think in general, the transaction market, as we've experienced through the Q4, has been robust, and I don't know that that's particularly weighted towards any one view of the market one way or the other. Or excuse me, what's going on with the election one way or the other. From the ten thirty-one perspective, you know, it's one that we've continued to monitor and have paid attention to. Green Street had some good comments on it earlier this year.

I you know I.

I think in general the transaction market as we've experienced in the fourth quarter as has been robust and I don't know that that's particularly weighted towards any one view of the market one way or the other or excuse me, it's going out the election, one way or the other.

From the 10 31 perspective, you know, it's one that we've continued to monitor and and have paid attention to and Green Street had some good comments on it earlier this year I think incrementally it might mean, a little bit less of smaller asset sales from from folks who would be looking to trade.

Chris Czarnecki: You know, I think incrementally it might mean a little bit less of smaller asset sales from folks who would be looking to trade out of properties and then move into other ones. On the whole though, I think an offsetting factor which is still of interest to us is the ability to do unit deals and do tax-deferred OP transactions. That's a tool, excuse me, that we have and have used quite a bit over the years. I think that OP gives us an opportunity to potentially be able to execute on some transactions that may not have been available to us before.

Trade out of properties and then move into other ones.

On the whole, though I think an offsetting factor, which is still of interest to us is the ability to do unit deals and do tax deferred Oh, Pete transactions and that's a tool kit that that's a tool excuse me that we have.

And have used quite a bit over the years and so.

I think that up Bob gives us an opportunity to potentially.

I'd be able to execute on some transactions that may not have been available to us before and on the disposition front, while we do do disposition activity, it's not a huge part of our business. Its usually on average two or 3% a year of the portfolio. So that's probably a little bit more of a wash all that but haven't haven't really seen a.

Chris Czarnecki: On the disposition front, while we do disposition activity, it's not a huge, you know, part of our business. It's usually on average 2% or 3% a year of the portfolio. You know, that's probably a little bit more of a wash all in. Haven't really seen a dramatic change in the transaction market, or seeing anything particularly different with the change in political landscape.

The change in the transaction market.

Or seen anything, particularly different with with the changing political landscape.

Okay, and then you mentioned, Chris the $64 million of assets you have under letters of intent.

John Kim: Okay. Then you mentioned, Chris, the $64 million of assets you have under letters of intent. Can you just remind us what your typical success rate is on closing on transactions when it goes into that stage? Any commentary you could provide on, you know, property type or deal expectations on these assets?

Can you just remind us what your.

That's right it on closing on transactions when it got into that stage.

And any commentary you can provide on property type or deal with expectations on these assets.

Sure. So I think there's a few things our general success rate is usually quite high from an ally to ultimate execution at the same time, Theres always diligence and in a very thoughtful review by our team and contract structure into things that do occasionally a changer or push a little bit so I always want to offer that cost.

Chris Czarnecki: Sure. I think there's a few things. Our general success rate is usually quite high from an LOI to ultimate execution. At the same time, there's always diligence and a very thoughtful review by our team, and contract structuring, and things that do occasionally change or push a little bit. Always wanna offer that caution. In general, one of the ways that we think about going forward with acquisitions is to really do a lot of the work upfront and stand behind our LOIs such that we've done a lot of underwriting, and that's something I think the team has done really well. I think that translates into a pretty high degree of closures with respect to LOIs.

But in general one of the ways that we think about going.

Going forward with acquisitions is to really do a lot of the work upfront and stand behind our allies, such that we've done a lot of underwriting and that's something I think the team has done really really well so I think that translates into a pretty.

A high degree of closures with respect to otherwise.

Chris Czarnecki: In terms of where those LOIs reside today and the existing things that are under contract, that's about $97 million of property under our control today. You know, we would see that sort of still blending into the high 6% initial cash cap rate zone. I would tell you that it's a good mix of industrial, healthcare assets a little bit, the QSR and our niche retail. Very consistent with our portfolio that we've built over the last five years. I think these are very complementary assets. They fit the strategy that we've employed and should be very seamless from an integration perspective to the portfolio and consistent with what we've bought before.

In terms of where where those otherwise reside today and the existing things that are under contract that's about $97 million of things under our $97 million of property under work under our control today.

And we would see that sort of still blending into the high 6% initial cash cap rate zone.

I would tell you that it's a good mix of industrial health care assets, a little bit on the QSR and our niche retail so very consistent with our portfolio that we've built over the last five years. I think these are very complementary assets. They fit the strategy that we've employed and should be very.

Seamless from an integration perspective to the portfolio and consistent with what we've we bought before.

Okay and then final question for me is on the dispositions included.

John Kim: Okay. Final question for me is on the dispositions. They included three vacant assets, and I think Ryan mentioned, one of them was an MOB. Can you just talk about disposition strategy going forward? If you do see an upcoming, or current vacancy, is the strategy or your preference more to sell the asset rather than retenant it at a, you know, at a high CapEx? Just, you know, how you think about, you know, managing vacancy in your portfolio.

Three vacant assets and I think Ryan mentioned, one of them with an MLP.

But can you just talk about disposition strategy going forward, if you do see an upcoming.

Our current vacancy is the strategy or your preference more to sell the asset rather than we tenant at a at a high capex.

Or just how you think about managing vacancy in your portfolio.

Yes, absolutely I think it's it's asset by asset dependent and as Bryan talked about we.

Chris Czarnecki: Yeah, absolutely. I think it's asset by asset dependent. As Ryan talked about, we did release just another one of the vacant RFAN sites this week with relatively, you know, no issue. I think, you know, we take each one individually. The one vacant MOB we had was one that we had worked on both leasing strategies and sales strategies, and ultimately decided to move forward with the sale component of it. We take it piece by piece and look towards what the best outcome is based on each of the assets. Again, we also did a reasonable amount of re-leasing for those other MOBs during the quarter, plus the Tractor Supply.

Did release, just another one of the the Bacon Erfan sites this week with.

Relatively.

No issue and so I think we take each one individually the one bacon demo B. We had was one that we had worked on both leasing strategies and and sales strategies and ultimately decided to move forward with the.

Sale component of it so.

So we take it piece by piece.

Look towards what the best outcome as based on each of the assets and again, we also did a reasonable amount of re leasing for those other ammo basis during the quarter plus the tractor supply. So I think it very much depends on where we are.

Chris Czarnecki: I think it very much just depends on where we are relative to market rents, where we are with the tenant and the great thing is we have very little near-term lease maturities coming, and so it's a manageable process, and we're always thinking five years out on that front.

Relative to market brands, where we are with the tenant and their desire to stay and.

The great thing is as we have very little near term lease maturities coming in so it's a it's a medical process and we're always thinking five years out on that front. So.

I realize you have very little.

John Kim: I realize you have very little upcoming expirations, but should we think about releasing CapEx rising, particularly in certain asset classes like office and MOBs, and to a lesser extent, industrial?

Okay exploration should we think about.

Releasing capex rising, particularly in certain asset classes like office at MLB and to a lesser extent industrial.

I don't think anything specific I don't think anything specific there to guide towards the health care assets that we release Didnt have any capex exposure.

Chris Czarnecki: I don't think anything specific there to guide towards the healthcare assets that we released didn't have any CapEx exposure or any CapEx increases. The other ones were fairly nominal and, you know, almost nothing. I don't know that there's anything particular to guide towards on heavy CapEx for any of the particular asset classes based upon what we're seeing today.

Already kept back Capex increases and.

And then the other ones were fairly nominal.

Stuff and so I don't know that there's anything particular to guide towards heavy capex for for any of the particular asset classes based upon what we're seeing today.

Great appreciate the color. Thanks, a lot of course, thank you.

John Kim: Great. Appreciate the color. Thanks a lot.

Chris Czarnecki: Of course. Thank you.

Our next question is from Vikram Malhotra from Morgan Stanley Go ahead.

Operator 2: Our next question is from Vikram Malhotra from Morgan Stanley. Go ahead.

Operator: Our next question is from Vikram Malhotra from Morgan Stanley. Go ahead.

Hi, Thanks for taking the questions.

Vikram Malhotra: Thanks for taking the questions. Just maybe just going back to the acquisitions, you talked about sort of the pipeline, the composition, you know, kind of the closure rates. I'm just sort of maybe wondering just bigger picture, can you give us a better sense of sort of the funnel, the broader set that you're considering, just so we get a sense of what the run rate could start to look like, you know, Q4 heading into 2021?

Just maybe just going back to the acquisition you talked about sort of the pipeline the composition.

The closure rate I'm, just sort of maybe wondering just bigger picture can you give us a better sense of sort of the fun, though that the the broadest set that you're considering just just so we get a sense of what the run rate good so.

Dr looked like Fourq, you heading into into 21.

Sure absolutely took them so I think.

Chris Czarnecki: Sure. Absolutely, Vikram. I think as we've moved forward and as the acquisitions team has started to move their pipeline into an actionable state, we've seen and thought about our volumes being fairly consistent with previous years. I believe this year from a run rate acquisition sourcing, we've been, you know, north of $17 billion the team has looked at and thought about from an acquisition perspective and underwritten. Now we've obviously been able to, with the IPO proceeds, begin to move that forward into closings. From our view, what we're seeing in the market, where we're working on a number of different transactions, the pipeline and the opportunity set feels pretty robust.

As we move forward and as the acquisitions team has has started to move their pipeline into an actionable state.

We've seen and thought about our volumes.

Volumes being fairly consistent with previous years. So I believe this year from a run rate.

Acquisition sourcing we've been north of $17 billion. The team has has.

Looked at and thought about from a from an acquisition perspective, an underwritten and that now we've obviously been able to with the IPO IPO proceeds begin to move that forward.

Into the closings and so from our view, what we're seeing in the market, where we're working on a number of different transactions.

Pipeline and the opportunities that feels pretty robust and assuming current market conditions hold we feel like we can be executing.

Chris Czarnecki: Assuming current market conditions hold, we feel like we can be executing close to historical or above historical levels in 2021, maybe excluding the large year of 2019, but more in line with historical averages over the past five years. That's generally how we're thinking about it today. Again, we're, you know, on track to exceed our projections for Q4, which were scaled to be coming out of the IPO, but feel really good about where we're headed for 2021 based on the broader opportunity set, the active pipeline, and whatnot from there.

Close to historical or above historical levels and 2021.

Maybe excluding the large year of 2019, but more in line with historical averages over the past five years and so that's generally how we're thinking about it today.

Again, we're on track to exceed our.

Projections for Q4, which were.

Scaled to be coming out of the IPO and but feel really good about where we're headed for for 2021 based on on the broader opportunity set the active pipeline.

And whatnot from there.

Okay. That's that's helpful and then just.

Vikram Malhotra: Okay. That's helpful. Then, just in terms of where we are today with the economy, obviously there's the final election result, but just given where we are with COVID right now, and especially in the restaurant and the retail sectors, can you kind of maybe give us the puts and takes as you see it on occupancy, over the next few months?

Yes, just in terms of the where we are today with the with the economy, obviously, they're the they're the filing election has all but just given where we are with gold bid right now and especially in the restaurant in the retail sector. What do you can you kind of maybe give us the puts and takes of you see it on occupancy.

Over the next few months.

Sure.

Chris Czarnecki: Sure. I think you've kind of hit on some of the things that we're closely focused on there, and I said it during the prepared remarks. You know, continue to pay very close attention to our casual dining portfolio, which has held up well, even with some sales declines that have been experienced across the entire industry. You know, most of our casual dining has strong national operators and corporate tenants, so that does give us additional surety there and a little bit more credit strength behind our operators, but it is certainly one that we're paying close attention to. Our QSR component has performed well and in line with expectations, and they've certainly been consistent on a year-over-year basis.

I think you've kind of hit on some of the things that we're closely focused on there and I said it during the prepared remarks.

We continue to vary pay very close attention to our casual dining portfolio, which has held up well, even even with some sales declines that have been experienced across the entire industry.

Most of our casual dining has strong national operators and corporate corporate tenants. So that does give us additional.

Surety, there and a little bit more.

Credit strength behind our operators, but it is certainly one that were paying close attention to.

Our QSR component has performed well and in line with expectations and they've certainly been consistent on a year over year basis.

Chris Czarnecki: Where more of our portfolio is weighted, since that is only about 15% of it, is to the industrial side and the healthcare side. Again, speaking fairly generally, the cold storage component, the food processing, and the packaged good sides of our industrial businesses have been showing relatively good strength and have performed at high levels over the last several months. Healthcare, as people were not able to defer a lot of elective procedures, they've also seen their businesses bounce back in a nice way. You know, occupancy is always a different, difficult thing to predict.

Where more of our portfolio is weighted since that is only about 15% of it as to the industrial side and the health care side again speaking fairly generally.

The cold storage component the food processing the package good sides of our industrial business have been.

I'm showing relatively good strength and have formed at high levels over the last last.

The last several months and then healthcare as people were not able to defer a lot of elective procedures. They have also seen their businesses bounced back in in a nice way so.

Occupancy is always a different difficult thing to predict we see caution around the restaurant space because of the winter months and all the reasons that you'd expect but feel.

Chris Czarnecki: We see caution around the restaurant space because of the winter months and all the reasons that you'd expect, but feel good about where we are from a high level of leased perspective in the 99% zone, so.

I feel good about where we are from a.

High level of least perspective in the 99% zone. So.

Okay, Great and then just last one of the GE any or can.

Vikram Malhotra: Okay, great. Then just last one on the G&A. Can you maybe remind us sort of what sort of run rate costs may carry on into 2021 and maybe what may go away? Just sort of looking for a, as we model things out, what's sort of the good run rate heading into 2021?

Can you, maybe remind us sort of what sort of run rate cost may carry on into 21, and maybe what may go away just sort of looking for as we model things out what's what's sort of the good run rate heading into 21.

Chris Czarnecki: Absolutely, Vikram. I'm gonna kick it to Ryan to talk about that for you.

Absolutely the criminal coming to kick it to Ryan to talk about that for sure.

Ryan Albano: Sure. Hi, Vikram. In terms of runway, run rate, you know, the way that we're thinking about it right now is, as I had mentioned in some of my remarks, we have seen a little bit of uptick in our G&A, related to, you know, additional costs of being a public company and whatnot. You know, I'd say in line with kind of our previous thoughts, which is run rate of G&A excluding stock-based comp, I'd say somewhere in that kind of $8 million, give or take, per quarter.

Okay.

In terms of runway run run rate you know the way that we're thinking about it right now is.

As I had mentioned in some of my remarks, we have seen a little bit of uptick in our DNA related to additional costs of being a public company and whatnot.

I'd say in line with kind of our previous thoughts, which is run rate she in any excluding.

Excluding stock based comp I'd say somewhere in that kind of $8 million give or take.

Per quarter.

Great. Thanks, so much.

Vikram Malhotra: Great. Thanks so much.

Thank you.

Chris Czarnecki: Thank you.

Our next question is from Anthony Paolone from JP Morgan go ahead.

Operator 2: Our next question is from Anthony Paolone from JPMorgan. Go ahead.

Operator: Our next question is from Anthony Paolone from JPMorgan. Go ahead.

Hi, Thank you.

Anthony Paolone: Hi, thank you. Your deal pipeline's become more robust and sounds like pretty comparable to what a number of your peers are seeing too. Just wondering, like, who are the sellers? Are you seeing more sale-leasebacks or these more existing net leases that folks are selling?

Sure you are deal pipelines.

Become more robust and sounds like pretty comparable to what a number of your peers are saying to us just wondering like who are the sellers are are you seeing more.

Sale leasebacks or it is.

More adjusting that leases that folks are selling.

Yeah. Good question, Tony Thank you for for that.

Chris Czarnecki: Yeah. Good question, Tony. Thank you for that. You know, I think when we were talking with you guys earlier this year and talking on the roadshow, you know, we highlighted a number of channels we source from. Honestly, in addition to having a robust pipeline that sort of matches our underlying portfolio, I think we've been sourcing through a number of those same channels into Q4 and for 2021. We have certain transactions going with developers that we've had long relationships with. We have two or actually might be three existing tenants we're doing additional transactions with as well. Obviously, working through the broader market and looking at a few sale-leaseback transactions there as well.

I think when we were we were talking with you guys. Early this year and talking on the road show, we highlighted a number of channels, we source from and honestly. In addition to having a robust pipeline that sort of matches our underlying portfolio. I think we've we've been sourcing through a number of of those same channels into Q4 and for 2021 and so we have.

Certain transactions going with developers that we've had long relationships with we.

We have to or actually maybe three existing tenants were doing us additional transactions with as well and then obviously working through the broader market and looking at a few sale leaseback transactions there as well and then we highlighted.

Chris Czarnecki: Then, we highlighted, while not a huge number, continuing to invest in our own assets through tenant improvements. We have a few opportunities, as I alluded to during the prepared remarks for Q4 and into 2021 there. We're really, you know, executing on our broad funnel to bring a number of different opportunities into the pipeline. We're sort of checking all the boxes of things we talked about earlier in the fall.

Well not a huge number.

Continuing to invest in our own assets through tenant improvements and.

We have a few opportunities.

As I alluded to during the prepared remarks for Q4 and into 2021 there. So.

And we're really executing on our on our broad funnel to bring a number of different opportunities into the pipeline. So we reversed.

Sort of checking all the boxes things, we talked about earlier in the in the fall.

Okay sounds it sounds like a bit more skewed towards.

Anthony Paolone: Okay. It sounds like a bit more skewed towards sale leasebacks or new leases as opposed to buying an existing net lease.

Sale leasebacks or new leases as opposed to buying an existing.

But when you.

Chris Czarnecki: I could double check it, but I think it's a balance between the two at the moment. There's at least a few sale-leasebacks and a few existing leases as well. It's just a mix.

Yeah, I think it's a I.

Chris Czarnecki: I could double check it, but I think it's a balance between the two at the moment. There's at least a few sale-leasebacks and a few existing leases as well. It's just a mix.

Double check that but I think it's pretty it's a balance between the two at the moment, there's at least a few sale leasebacks and to add a few existing.

Few existing leases as well so it's just a mix.

Okay got it and then.

Anthony Paolone: Okay. Got it.

Or expansions of our expansions of existing leases as well excuse me for existing tenants, so grouping more into a master lease.

Chris Czarnecki: expansions of existing leases as well, excuse me, for existing tenants. You know, grouping more into a master lease.

Anthony Paolone: Oh, okay. Got it. The last point or two of non-collections, you know, how should we think about that over the next few quarters? Or is that a bit of a moving target because maybe it's not the same group of tenants based on sort of that occupancy discussion you had with Vikram?

Okay got it.

And then the last point or two of of non collections.

How do how should we think about that over the next few quarters or or is that a bit of a moving target because maybe it's not the same group of tenants based on sort of that occupancy discussion you had with that growth.

Chris Czarnecki: Yeah. It's more of a moving target. The last little bit there is simply deferred rent and then one small tenant who has a partial amount left for October. I don't know. Ryan, is there anything else you'd throw in there?

Yeah, it's more of a moving target over the last little bit there is simply deferred rent and then one small tenants who has a partial amount left for October I don't know Ryan is there anything else you throw in there.

No I don't think so I mean, I think it's been strong.

Ryan Albano: No, I don't think so. I mean, I think it's been strong, continues to remain strong. Overall, I would say that, you know, right in line with what we're seeing today.

Continues to remain strong and overall I would say that.

Right in line with what we're seeing today.

Chris Czarnecki: Yeah.

Okay, and then last question just.

Anthony Paolone: Okay. Last question, just to roll the run rate on NOI forward. The $1.7 million that you added back with capital improvement slash reserves, what was that and how should we think about, you know, that as a run rate matter?

Just to roll the run rate on an NOI for the 1.7 million that you added back the capital improvements slush reserves, what was that and how should we think about that as a run rate matter.

Chris Czarnecki: Yep. Kick it to Ryan for that.

Ticket dry and for that.

Ryan Albano: Sure. I'd say that's one sort of one-time item to describe it a little bit better, that there was no impact historically to AFFO or to adjusted AFFO. What it really relates to is a tenant-funded capital reserve item that they would fund every period since 2010. The number that you see there of the $1.6 is sort of the cumulative amount since 2010. We reclassified during this period that amount to the balance sheet as a liability. Net-net to AFFO, it was zero, given that there was sort of an offset to top line during this period. Overall, it's not something that we need to think about going forward from a modeling perspective.

Sure I'd say that's.

One sort of one time item to describe it a little bit better than there was no impact historically to AFFO or today to AFFO when it really relates to as a tenant funded capital reserve item that they would fund every period since 2010. The number that you see there of the 1.6 is sort of the cumulative amount.

Since 2010, we reclassified during this period that amount to the balance sheet as a liability and.

Net net to an FFO.

It was it was zero given that there was an offset to topline during this period. So overall, yes.

It's not something that we need to think about going forward.

From a modeling perspective.

Okay. So it was up in up in revenue or it was up and.

Anthony Paolone: Where was it on the income statement, I guess?

Was it up and were watching it on the income statement.

Anthony Paolone: Where was it on the income statement, I guess?

Yes, historically since 2010 each period, we had recorded into revenue with an offset to AFFO. So no FX impact along the way as we reclassified that cumulative amount this quarter, we reclassified it from top line to it to a liability on the balance sheet and had a corresponding.

Ryan Albano: Yep. Historically, since 2010, each period, we had recorded it to revenue with an offset to AFFO. No AFFO impact along the way. As we reclassified that cumulative amount this quarter, we reclassified it from top line to a liability on the balance sheet and had a corresponding offset to the AFFO as well. Again, no impact to AFFO this period either.

The offset to the AFFO as well so again no impact at all this period either.

Okay. Thank you.

Anthony Paolone: Okay. Thank you.

Well.

Operator 2: Our next question is from Ki Bin Kim from Truist. Go ahead.

Operator: Our next question is from Ki Bin Kim from Truist. Go ahead.

Our next question is from Ki bin Kim from true, Yes go ahead.

Thanks, Good afternoon.

Ki Bin Kim: Thanks. Good afternoon. Can you just talk a little bit more about your industrial acquisition strategy? I'm still curious if that is predominantly where you want to deploy capital and if you can provide some details on, like, what type of assets, what type of markets you're looking at, and the yields, obviously.

Can just talk a little bit more about your.

Industrial acquisition strategy.

So curious if that.

That is predominantly where you want to deploy capital and if.

If you can provide some details on what type of assets what type of markets you're looking at.

And the yields obviously.

Sure So our industrial it's always worth reiterating.

Chris Czarnecki: Sure. Our industrial, it's always worth reiterating, obviously talked a lot about during the IPO, but for us, we're focused on more secondary markets for industrial and you know, slightly smaller assets relative to what you might think of for the very big, you know, 1 million sq ft distribution facilities or sort of coastal, or I'd say gateway market, you know, facilities. Our portfolio today is broken down roughly about 1/3 in manufacturing, 1/3 in distribution, and the remainder in food processing and cold storage and some flex space. Flex and R&D space, excuse me. Our average asset size is about 200,000 sq ft.

Obviously talked a lot about during the IPO, but for US we're focused on more secondary markets for industrial and slow.

A slightly smaller assets relative to what you might think of for the very big million square foot distribution facilities or sort of coastal.

Or I'd say gateway market no.

Facilities so our.

Our portfolio today is broken down roughly about a third in manufacturing a third in distribution and.

The remainder in food processing and cold storage in some flex space flux in R&D space excuse me our average asset size is about 200000 square feet. Some of our bigger markets include.

Chris Czarnecki: Some of our bigger markets include. Actually, our largest industrial markets include Chicago and Dallas, and then Wisconsin and Phoenix. It's more secondary markets. You know, I think what we're sourcing today is actually fairly similar in that regard. You know, more secondary markets, mid-sized assets. They're a mix of a couple of different property types within there. Obviously, once we get those closed, we'll give you more details. You know, I'd say there's a reasonable range on cap rates there, but still finding good opportunities in that mid- to high-six zone for the industrial that we're looking at today.

She actually our largest industrial markets include Chicago, and Dallas, and then Wisconsin in Phoenix.

Just more secondary markets and I.

I think what we're sourcing today is actually fairly similar in that regard.

It's more secondary markets.

Mid sized assets there are mix of a of a couple of different property types within there and obviously once we get those closed will will give you more details and I'd say there is a.

A reasonable.

Range on cap rates, there, but I'm still finding good opportunities in that mid to high six owned for for the industrial that we're looking at today.

Okay. Thanks.

Ki Bin Kim: Okay, thanks.

Chris Czarnecki: Mm-hmm.

And.

Ki Bin Kim: Generally speaking, what is the reserve level that you're carrying right now?

Generally speaking.

Ki Bin Kim: Generally speaking, what is the reserve level that you're carrying right now?

What is the reserve level that you're carrying right now.

Sure I'll I'll pass that one right.

Chris Czarnecki: Sure. I'll pass that one to Ryan. Go ahead.

But.

Sure.

Ryan Albano: Sure. You know, we're typically looking at about 75 BPS. You know, as we look at that reserve level, I think there are two things playing into it. I think, you know, historically we've operated inside of that. You know, just given some of the uncertainty related to the environment and having an uptick recently in a number of cases and so on, you know, I think that we could see the other side of that. I think today, you know, looking at a 75 BPS assumption or so, generally makes sense to me.

You know, we're typically looking at about 75 bips.

And as we look at that reserve level I think there are two things playing into it I think.

Yes, historically, we've operated inside of that but you know just given some of the uncertainty related to the environment and having an uptick recently in a number of cases and so on I think that we can see the other side of that so I think today looking at 75 bip assumption or so.

Generally makes sense to me.

Okay, and just last quick one here.

Ki Bin Kim: Okay. Just last quick one here. I'm not sure if you already addressed it, but the $1.662 million of reserves or capital improvements that was reversed. Did you already talk about that in the call?

I'm not sure if you already addressed it but the 1.662 million.

Of reserves or capital improvements that was reversed.

As you already talked about that in the call.

Yes, that's what I was describing earlier as.

Ryan Albano: Yep, that's what I was describing earlier as.

Ki Bin Kim: Okay.

Ryan Albano: The item that had no AFFO impact previously or today, and it was the reclass to the balance sheet as a liability for the cumulative amount this period.

The item had no impact previously are today and it was the reclass to the balance sheet as liability for the cumulative amount.

Ryan Albano: The item that had no AFFO impact previously or today, and it was the reclass to the balance sheet as a liability for the cumulative amount this period.

This period.

Okay. Thank you.

Ki Bin Kim: Okay. Thank you.

Ryan Albano: Yep.

Thank you.

Chris Czarnecki: Thank you.

Our next question is from Caitlin Burrows from Goldman Sachs go ahead.

Operator 2: Our next question is from Caitlin Burrows from Goldman Sachs. Go ahead.

Operator: Our next question is from Caitlin Burrows from Goldman Sachs. Go ahead.

Hi, good afternoon.

Caitlin Burrows: Hi. Good afternoon. I guess continuing on the acquisition front, could you just talk about how competitive the landscape is right now and just what allows you to make acquisitions at the target cap rates that you want for any favored property types, like industrial or healthcare?

I guess continuing on the acquisition front can you just talk about how competitive the landscape is right now and just what allows you to make acquisition at the target cap rates.

Our favorite property type like industrial or okay.

Sure.

Chris Czarnecki: Sure. I think the acquisition environment is competitive, but it's been competitive for a long time for us. You know, today, it's a continued focus on our core strategy, some of our smaller assets, and secondary markets for the industrial space. It's relationships that we've built over the long term, some of the developer relationships we've been able to work with, and building our brand in that regard. Then it's also an ability to execute with existing tenants as well. You know, we certainly follow a lot of transactions and don't execute on many of them for a variety of reasons, including competitive pricing.

I think the acquisition environment is is competitive but it's been competitive for a long time for us and you know today.

It's it's a continued focus on our core strategy in some of our smaller.

Some of our smaller assets in secondary asset secondary markets for the industrial space.

Its relationships that we've built over the long term and some of the developer relationships, we've been able to work with and in building our brand in that regard and then it's also an ability to execute with it.

Existing tenants as well and so.

We certainly follow a lot of transactions and don't execute on many of them.

There are a variety of reasons, including competitive pricing, but.

Chris Czarnecki: We feel like our reputation, our relationship, collection, and our team has proven to be resilient and we continue to see the right deal flow to meet our acquisition criteria. We've been very focused on trying to continue to grow that portion of our portfolio as it's one that's been very successful for us.

We feel like our reputation our relationship collection and our team has has.

Proven to be resilient and we continue to see.

The right deal flow to meet our acquisition criteria and so we've been we've been very focused on trying to.

Continue to grow that portion of our portfolio as its one thats been very successful for us.

Okay, and then on the the restaurant rent coverage that you reported three times could you give more details on this like what time frame sales that includes if its pre or post during endemic and how often you get.

Caitlin Burrows: Okay. Then on the restaurant rent coverage that you report of 3x, could you give more details on this? Like, what timeframe of sales that includes, if it's pre or post during pandemic, and how often you get the restaurant sales results?

A restaurant sales results.

Sure we receive I believe it's 99 or high 90% of four while reporting from the restaurant portfolio.

Chris Czarnecki: Sure. We receive, I believe it's 99 or high 90% of four wall reporting from the restaurant portfolio. It is through the end of Q2 at this point. Now, some folks may report only once per year or some do quarterly as well. But it's the most up-to-date data we have through the end of Q2 and even into Q3 reporting for some that might report more quickly than you know 30 days after the quarter is over or whatnot, so.

It is through.

Through the end of Q2 at this point.

Now some folks may.

Report only once per year, or some do quarterly as well but.

But it's the most up to date data we have through the end of the second quarter and even into third quarter reporting for some that that.

That might report more quickly than that.

30 days after the quarter's end or whatnot. So.

All right Okay. Thank you.

Caitlin Burrows: Got it. Okay, thanks.

Chris Czarnecki: Yep.

Our next question is from Chris Lucas from capital One go ahead.

Operator 2: Our next question is from Chris Lucas from Capital One. Go ahead.

Operator: Our next question is from Chris Lucas from Capital One. Go ahead.

Hey, good afternoon guys.

Chris Lucas: Hey, good afternoon, guys. Hey, Chris, just on the investment side, talked a lot about the industrial properties that you're interested in, but maybe if you could rank order sort of where your comfort level is from sort of, you know, focus and best opportunity to sort of, you know, where things are less attractive for you right now from a, you know, risk-adjusted basis across the different kinds of lines of business that you invest in.

And Chris on the investment side talk.

I talked a lot about the industrial.

Paul properties that you're interested in but maybe if you could rank order sort of where your comfort level is from sort of you know.

[noise] focus and best opportunity to sort of where things are less attractive for you right now from a risk.

The risk adjusted basis across the different kinds of.

Lines of business that you invest in.

Yeah.

Chris Czarnecki: Yeah. Absolutely. I think, as you said, there's a high level of interest in industrial and that's obviously where a lot of our time is spent. Those businesses have held up well. We also do have a strong interest in expanding our healthcare portfolio further. That's. There's a couple of healthcare transactions with existing tenants in our pipeline that we're working on and some new ones as well. Cap rates there have been pretty attractive in the upper 6% range. We've been able to grow our verticals, either the off-campus, but hospital affiliated, component of our portfolio, so smaller MOBs there that feed the broader health system.

Absolutely so I think as you.

You said Theres, a high level of interest and industrial and.

Thats, obviously, where a lot of our time is spent.

Those businesses have held up well.

We also do have a strong interest in expanding our health care portfolio further.

That's that's there's a couple of health care transactions with existing tenants and our pipeline that we're working on and some new ones as well.

Cap rates there have been.

Pretty attractive in the upper 6% range and we've been able to grow our verticals either.

The off campus.

But hospital affiliated component of our portfolio. So smaller movies, there that that feed the broader health system and then.

Chris Czarnecki: Equally, I should say, excuse me, is the large regional physicians groups that might be a specialist in their given market. We're working on some repeat transactions with a few groups there as well. Those cap rates and those lease terms have been attractive to us. On the restaurant side of the business, as I've said a few times, casual dining is certainly a level of caution and not looking to really transact there. We are working on a few QSR opportunities. Those are more specialized and with existing folks that we know. The broader QSR market is probably priced to a point where we're not likely a buyer on a regular basis.

Secondarily or equally.

Equally I should say out excuse me as the large regional physicians groups that might be a specialist in their given market.

We're working on some some repeat transactions with a few groups there as well and so those those cap rates in those lease terms have been attractive to us.

The.

Restaurant side of the business.

As I've said, a few times casual dining is a certainly a level of caution and not looking to really transact there.

We are working on a few QSR opportunities those are more.

Specialized in with existing folks that we know the broader QSR market is probably.

Price to a point, where we're not likely a buyer on a regular basis that tends to be a very competitive market with smaller buyers and whatnot I'm excited to add these these assets if they come through to the portfolio, but it's not a spot where there's been a lot of large sale leasebacks or a lot of.

Chris Czarnecki: That tends to be a very competitive market with smaller buyers and whatnot. I'm excited to add these assets if they come through to the portfolio, but it's not a spot where there's been a lot of large sale-leasebacks or a lot of attractively priced opportunities. Our niche retail assets have been generally priced reasonably attractively. We've got one or two coming in as well this quarter. Those have been, you know, ±7% cap rate for things that have done quite well during the pandemic. You know, happy to add those on the margin, but not looking to expand that massively. I guess rank order would be industrial and healthcare up top.

Attractively priced opportunities and then our nish retail assets have been.

Generally been priced reasonably attractively we.

We've got one or two coming as well this quarter those of Ben.

Plus or minus a 7% cap rate for things that have done quite well during the pandemic.

So happy to add those on the margin, but not looking to expand that.

Massively so I guess rank order would be industrial and health care up top very happy to add QSR, but don't see the pricing, making sense there and then.

Chris Czarnecki: Very happy to add QSR, but don't see the pricing making sense there. On the margin, a little bit of incremental, niche retail.

On the margin a little bit of incremental.

Nice retail.

Okay. Thanks for that.

Chris Lucas: Thanks for that detail. I guess just a couple of, sort of, maybe questions for Ryan just on the rent collection.

Hi, guys, just a couple of sort.

Sort of maybe questions for Brian just on the rent collection.

Chris Czarnecki: Yep.

Chris Lucas: Anything related to timing. I mean, is 100%, you know, typical pre-COVID for you guys to have collected other than, say, for, you know, credit issues. Is that we're always sort of getting all of the rent, or were there timing issues that, you know, we should be thinking about as well?

Anything related to timing I mean, this is a 100% no typical pre Cobra for you guys to have collected other than say for your credit issues, but is that we will always sort of getting all around where there were timing that we should be thinking about as well.

Yeah, No I'd say historically, we've been at that 90 999.9, 100% of rent so yes.

Ryan Albano: Yeah, no, I'd say historically, we've been at that 99.9, 100% of rent, so yes.

Okay. That's out and then that's historically and then minus the general dislocation of.

Chris Lucas: Okay.

Ryan Albano: That's how it's historically been and, you know, minus the general dislocation of COVID and so on. I think that that's where the portfolio has historically operated.

Covidien so on I think that.

That's when the portfolio has historically operated.

Okay, and then I just wanted to follow up on the sort of DNA guide.

Chris Lucas: Okay. I just wanted to follow up on the sort of the G&A guide. If I got it right, you did $7.2 in total G&A this quarter, and about $800 of that was non-cash comps. So that's $6.4 on a cash basis, roughly. Can you maybe give me a sense as to what the either the cash component of or the cash G&A run rate should be, or whether or not, you know, just sort of help me out with what I'm trying to tie what you had previously stated with kind of what we saw in Q3.

I got it right is it seven two in total January this quarter and about 800 of that was non cash comp. So that's six four on a cash basis roughly.

Can you can you maybe give me a sense as to what that either the cash component of.

The cash run rate should be or whether or not.

Just sort of help me out I am trying to tie what you previously stated with the kind of what we saw weaker quarter.

Sure I'd say as we think about 2021 and so on I'd say, you know is that cash genie component or or DNA acts.

Ryan Albano: Sure. I'd say as we think about 2021 and so on, I'd say, you know, it's that cash G&A component or G&A X the stock comp. You know, the few things that are coming to mind at the moment that sort of feed that $8 ± million, give or take, a quarter run rate is some additional costs of operating a public company, right? Increased D&O insurance and things of the like. You know, as we continue to get back into deal activity and so on, I'd see some uptick in T&E expenses and so on. A lot of little things that lead to it. You know, I think that.

Stock comp I.

A few things that are coming to mind at the moment that sort of feed that eight plus or minus give or take kind of million dollar quarter run rate is.

[music].

Some additional costs of operating public company rate increase DNL insurance and things alike.

As we continue to get back into deal activity and so on and see some uptick in.

In T. any expenses and so on but a lot of all things that lead to it.

You know I think that that is as I think about the million give or take and I think that's a fair assessment of run rate.

Ryan Albano: As I think about the $8 million, you know, give or take, I think that's a fair assessment of run rate, as we sort of think about it going forward.

As we sort of think about it going forward.

Super Thank you Thats all I have today.

Chris Lucas: Super. Thank you. That's all I had today.

Thank you Chris.

Ryan Albano: Thank you, Chris.

Operator 2: Our next question is from Michael Gorman, from BTIG. Go ahead.

Operator: Our next question is from Michael Gorman, from BTIG. Go ahead.

Next question is from Michael Gorman from BTG. Please go ahead.

Yes. Thanks, Good afternoon, Chris if we just go back to.

Michael Gorman: Yeah, thanks. Good afternoon. Chris, if we just go back to on the acquisition side and then within the portfolio. You made some comments in your prepared remarks, and then in response to a prior question. Can you just talk about how you're thinking or what the conversations you're having with your office tenants right now and how you're looking at potential office acquisitions? What, you know, are the conversations you're having that maybe make you less interested in the space as a part of the portfolio?

The acquisition side and then within the portfolio you made some.

Comments in your prepared remarks, and then well.

Sponsor. Prior question can you just talk about how you're thinking or what the conversations you're having with your office tenants right now and how you're looking at potential office acquisitions, what's what are the conversations you're having that maybe make you less interested in the space.

Part of the portfolio.

Sure.

Chris Czarnecki: Sure. I think one of the things that we've long held is a cautious view on office. Our office is generally more suburban in nature, which is certainly more of a benefit during this timeframe. We have included office, and it's been a way for us to I would say differentiate ourselves on certain transactions and sale-leasebacks where there might be a corporate office along with, say, several industrial facilities or whatnot. We've thought about our office exposure in that, you know, 10% of the portfolio plus or minus a little bit being a good spot for us.

So I think.

One of the things that we've.

Long held as a cautious view on office our offices is generally more suburban in nature, which is certainly more of a benefit during this timeframe.

We have.

Included office and its been away for us too.

I would say.

Differentiate ourselves on certain transactions and sale lease backs, where there might be a corporate office, along with say several industrial facilities or or whatnot.

So we've we've thought about our office exposure in that 10% of the portfolio plus or minus a little bit being a good spot for us.

Chris Czarnecki: You know, where we sit today, we've had a lot of conversations with our office tenants as we have conversations with all of our tenants on a regular basis. You know, not everybody is fully back to work, but we feel like we have very good long-term leases and strong credit there. Ultimately, there's still just a lot to be sorted out on the long-term office model and whether tenants nationally need the same amount of space that they did before or whether they adopt some other hybrid model.

Where we sit today weve.

I had a lot of conversations with our office tenants as we have conversations with all of our tenants on a on a regular basis.

Not everybody is fully back to work, but we feel like we have very good long term leases and.

Strong credit there but.

Ultimately there is still.

Just have a lot to be sorted out on the long term office model and weather.

Tennants nationally need the same amount of space, if they did before or whether they adopt.

Some other hybrid model and so for us to make 15 or 20 year commitments, we want more surety on how people are going to.

Chris Czarnecki: For us to make 15- or 20-year commitments, we want more surety on how people are going to operate their businesses once this is behind us. For us, it's really about just waiting to see how that shakes itself out, and spending extra caution there and just making sure that our portfolio is in good shape, which, collections have been good and our tenants have strong credit, as I said, and then really just continuing to see how that model shakes out over time.

Operate their businesses once once this is behind us and so for US it's really about.

Just waiting to see how that shakes itself out and.

And spending spending a lot of extra spending extra caution there and just making sure that.

Our portfolio is in good shape, which collections have been good and our tenants have been have strong credit as I said and then really just continuing to see how that model shakes out overtime.

That's helpful. Thanks, and obviously it hasn't been much of an issue for you all with your portfolio given the collections in the occupancy, but as you think about the footprint and think about making new investments how much maybe increased focus are you putting on local responses and local governments as we see greater.

Michael Gorman: That's helpful. Thanks. Obviously, it hasn't been much of an issue for you all with your portfolio, given the collections and the occupancy. As you think about the footprint and think about making new investments, how much maybe increased focus are you putting on local responses and local governments as we see greater differentiation in how people are opening up and what kind of regulations they're putting in place for different businesses? Is local governance playing a bigger role in your underwriting process?

Differentiation in how people are opening up and what kind of regulations are putting in place for different businesses is local governance, playing a bigger role in your underwriting process.

No it's an interesting.

Chris Czarnecki: You know, it's an interesting question. I think it's been a component of certain asset classes for us over time. I would say on the healthcare side and the certificate of need states and the restrictions imposed, maybe not on the local level, but on the state level, have always been things we've thought about. You know, a number of our acquisition opportunities today coming out of this, we do have a better sense when we're visiting properties of where local impacts might be hitting our tenants, you know, in some way or another. Future tenants, I should say, not current tenants.

Question I am I think it's it's it's been a component of.

Of certain certain asset classes for us overtime, I would say on the healthcare side and the certificate of need states and the restrictions imposed maybe not on the local level, but on the state level have always been things we've thought about.

You know a number of our.

Acquisition opportunities today coming coming out of this we do have a better sense when were visiting properties of.

Where local impacts might be.

Hitting our hitting our attendance a you know in some way or another future tenants I should say not a current tenants, but we because of where it when we started to make acquisitions. We do have the benefit of the last six months and understanding how people have reconfigured their spaces and and whatnot. So that is a nice benefit for us to have that sort of a go.

Chris Czarnecki: You know, we do have the benefit of the last six months and understanding how people have reconfigured their spaces and whatnot. That is a nice benefit for us to have that sort of going into these Q4 acquisitions. You know, ultimately, when I think about local restrictions or local components of the portfolio and future acquisitions, the one thing I really like about our portfolio is the cross diversification that exists amongst it. You know, again, not to speak at the state level so much, but it's just easy within Texas. We have a tremendous amount of industries, property types, and tenants and whatnot.

Going into these these Q4 acquisitions and then ultimately.

When I think about local local restrictions or local components of the portfolio and future acquisitions. The one thing I really like about our portfolio is the cross diversification that exists amongst it and.

Again not to speak at the space state level, so much but it's just easy within Texas, we have a tremendous amount of industries property types and tenants and whatnot. So.

Chris Czarnecki: Even within a municipality of, or a state of that magnitude, we really don't have a lot of concentration within any one component such that if there was a change to some of those restrictions and some of those state level or county level changes, we really shouldn't feel it across the whole portfolio. That's a positive in my mind as well.

Even within a municipality of.

State of that magnitude, we really don't have a lot of concentration within any one.

Potent such that if there was a change to.

Some of those restrictions in some of those.

State level or county level changes, we really shouldn't feel it across the whole portfolio. So that's that's a positive in my mind as well.

Great and then maybe just last one for me as you think about the pipeline and I apologize if I missed that.

Michael Gorman: Great. Maybe just last one from me. As you think about the pipeline, and I apologize if I missed it, does the pipeline include any expansion into new property types, like the expansion into cold storage was or into life sciences? Any new property types that are in that pipeline that you're evaluating?

Just the pipeline include an expansion into new property types like the expansion into cold storage was or into life sciences, and any new property types that are in the pipeline that you're evaluating.

No not specifically today, it's the it's the core industrial healthcare and.

Chris Czarnecki: No, not specifically today. It's the core industrial healthcare and QSR business mostly in the pipeline today, so.

Yes, our business, mostly in the pipeline today so.

Great. Thanks, so much thank.

Michael Gorman: Great. Thanks so much.

Chris Czarnecki: Thank you.

Thank you.

Our next question is from Frank Lee from BMO go ahead.

Operator 2: Our next question is from Frank Lee from BMO. Go ahead.

Operator: Our next question is from Frank Lee from BMO. Go ahead.

Hi, good afternoon, everyone. How should we think about funding for the acquisitions that are under LOI right now.

Frank Lee: Hi, good afternoon, everyone. How should we think about funding for the acquisitions that are under LOI right now? Is the expectation these deals will be initially funded with cash and on the line versus establishing an ATM?

Expectations. These deals will be initially funded with cash and online versus establishing an ATM.

Chris Czarnecki: Yeah, Frank, I'm gonna let Ryan take that one, but.

Yeah, Frank I'm going to let Ryan take that one but.

Ryan Albano: Sure. Yeah, I'd say, you know, early on here, we're sitting with a significant amount of cash on the balance sheet ready to deploy. We'll first put that to use and then, you know, work with the revolver that we just upsized in conjunction with the IPO to $900 million. I'd say, you know, the acquisitions over the next, you know, coming quarters and whatnot should be funded primarily in that order.

Sure.

Yes, I'd say you know our early on here are we're sitting with a significant amount of cash on the balance sheet ready to deploy so we'll first put that to use and then.

Work with the revolver that we just upsize in conjunction with the IPO to $900 million and say you know the acquisitions over the next.

Cutting corners, and whatnot should be funded primarily in that order.

Okay, Great and then what are your current thoughts on providing 2021 guidance with.

Frank Lee: Okay, great. What are your current thoughts on providing 2021 guidance with Q4 earnings?

Your earnings.

Sure I think what we've tried to do today is give a little bit of an outlook on.

Ryan Albano: Sure. You know, I think what we've tried to do today is give a little bit of an outlook on what acquisitions are shaping up to be, both sort of in terms of Q4 and what the pipeline looks like and how we're thinking about the potential for next year. You know, as we make our way sort of through Q4, we'll obviously continue to evaluate best practices and so on. As we move forward, look to, you know, what those best practices are. I guess, you know, if you're asking today about specific AFFO guidance for next year, or AFFO per share guidance for next year, you know, right now we're not specifically committing to that.

The.

What acquisitions are shaping up to be both sort of in terms of Q4, and what the pipeline looks like and how we're thinking about the potential for next year.

As we make our way sort of through Q4, we'll obviously continue to evaluate our best practices and so on and as as we move forward look too.

You know what those best practices are I guess, if you're asking today about specific AFFO guidance for next year, our AFFO per share guidance for next year.

Right now, we're not specifically committing to that.

Okay. Thank you.

Frank Lee: Okay, thank you.

This concludes the question and answer session I would now like to turn the conference back over to Chris Our Nike for closing remarks.

Operator 2: This concludes the question and answer session. I would now like to turn the conference back over to Chris Czarnecki for closing remarks.

Operator: This concludes the question and answer session. I would now like to turn the conference back over to Chris Czarnecki for closing remarks.

Thank you so much.

Chris Czarnecki: Thank you so much. I will close by again continuing to both thank all of our investors and our employees for their diligent work in helping make Broadstone Net Lease so successful. We are very excited to continue to execute on our growth plan in Q4 and into 2021, and we very much look forward to sharing updates with everyone as appropriate through H2 of the year and into Q1. Thank you all very much and have a great afternoon and weekend.

I'll close by again continuing to both thank all of our investors and our employees for their diligent work and helping make broad stoned at least so successful.

We are very excited to continue to execute on our growth plan in Q4 and into Q and 2021, and we very much look forward to sharing updates with everyone as appropriate through the back half of the year and into the first quarter. Thank you all very much and have a great afternoon weekend.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Operator 2: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Q3 2020 Broadstone Net Lease Inc Earnings Call

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