Q3 2024 Broadstone Net Lease Inc Earnings Call

Carla: Hello and welcome to the Rockstone Netlist 3rd quarter 2020 for Ernest Conference Call. My name is Carla and I will be your prey today.

Please note that today's call is being recorded. I will now turn the call over to Brent Maedl, director of corporate finance and investor relation at Broadstorm to begin. Brent, please go ahead.

Thank you everyone for joining us today for Broadstone Metley's third quarter, 2024 earnings call. Today's call, we will hear prepared remarks from CEO John Morano, President and CEO Ryan Albano and CFO Kevin Fennell.

Paul for the Q&A portion of this call. As a reminder, the following discussion and answers to your questions contained forward-looking statements with our subject to risk and uncertainties that can cause actual results through the further and materially due to a variety of factors.

We cautioned you not to place unduly lions on these forward-looking statements and refer you to our SEC filings, including our form 10K for the year ended December 31, 2023 for a more detailed discussion of the risk factors that make God such good renters.

and he forward-looking statements provided during this conference call are only made as a date of this call. With that, I'll turn the call over to John.

Thank you, Brent, and good morning, everyone. We began 2024 with two main goals. First, to reposition our portfolio through our clinical healthcare simplification strategy, focusing our future on industrial, retail, and restaurant asset.

and second, to put in place the foundation for attractive and sustainable AFFO per share growth through our differentiated strategy in core building blocks.

With the progress we have made today, particularly in this last quarter, I am proud to say that we believe we have substantially accomplished both. And are now looking forward to setting a new baseline for being held growth in performance in 2025.

Starting with our clinical healthcare simplification strategy, with the completion of the latest launch of sales comprising 10 clinical healthcare assets that close on October 2.

We successfully brought our total healthcare exposure below 10%. But most importantly, reduced our exposure to clinical access to approximately 4% of our ADR.

The 6% of our assets that include animal health services, med-teller medical retail, and life science assets will generally continue to have a home and our broader portfolio and are not the focus of our current disposition efforts.

Dying the 4% of our remaining clinical surgical and traditional medical office assets will remain a goal for us, but will not be as much of a front and center focus now that our total clinical exposure is relatively immaterial.

In order to maximize value for the remaining clinical assets, we anticipate those dispositions will have various transaction timelines that comfortably extend into 2025 and beyond, given the need to address some combination of shorter leastoration, space utilization rates or elevated credit risk.

With a heightened focus on the clinical health care dispositions winding down, we have been able to devote more resources to our year-long effort to put in place the foundation for attractive and sustainable AFF over share growth.

Carla: through our differentiated strategy in core building blocks. A key tenet of which is a laddered and long-term pipeline of attractive build-to-suit development projects.

We saw the considerable benefits of this strategy in multiple ways this quarter.

First, we reach substantial completion on our UNFI bill-to-suit development in early September.

This brand new high quality, 1 million square foot, tri-climate food distribution asset, strategic location in Sarasota, Florida, is now operational and contributing to our earnings base.

with an initial cash yield of 7.2% of 15-year-oldly term and 2.5% annual rent escalations that drive a straight 9-year-old of 8.6%.

The project with the head of schedule and below budget, thanks to solid execution by all parties. We are incredibly excited about this project and are grateful to you and a fine. Sandstone, our good development partner and all of the parties that made this build a studio success.

Second, we continued laying the necessary groundwork for sustained success in our laddered and long-term build-to-use strategy.

We currently have 405 million in committed development with attractive initial castles in the mid to high 7% range and straight line yields exceeding 9%.

Carla: South Sequenta Porter-end, we closed and began initial funding on two developments with an estimated total cost of approximately 114 million. And expect the close and begin funding the rest of our committed pipeline in the coming weeks.

I'm extremely proud of our team's ability to execute on this differentiated core building block of our growth.

These build the two projects are all for identified tenants with structures in place to mitigate the traditional development risk associated with construction delays and cost overruns.

Maybe best of all, we are leveraging existing and direct relationships to build this pipeline, and further deepening relationships that should provide ample opportunity for more.

Carla: Our development partners need someone that brings sure to be creative and help them secure projects and grow their businesses.

They have found that in B&L.

with our attractive denominator, the individual size and aggregate scale of the bill the suits, comprising this strategic initiative, moves the needle for our growth and does so in a differentiated way that drives long-term value.

Carla: just with a 16-pack line.

We have already secured approximately 33 million of incremental ABR that will come online in Q42025 in the first half of 2026 And are actively seeking additional build-to-suit opportunities to round out our targeted ABR growth for 2026 as well as into 2027.

While the traditional net least model relies on inner-gannock growth from the regular way transaction market, we are seeking to drive the NL's growth through this differentiated and long-term focus core building block.

No one can predict what the net least acquisition market will look like in Q4 2025 or 2026.

But we can tell you today without having to do anything else.

and the United States. We will add a minimum of approximately 33 million of ABR during that time period through this strategy and our build-to-suit pipeline as it exists today.

and with the incremental new AVR added, at each project reaches substantial completion and rent commences, we're able to maintain our leverage ratio comfortably below six times.

We're doing things differently here at B&L and we couldn't be more excited about what's to come.

We also have our eye on the future operationally.

Our asset management team emphasizes engaging in releasing touchpoints as early as 24 months prior to these expiration. So we are already actively evaluating our least role over through 2026.

Disapproach not only strengthens our relationships with tenants, but also provides us with valuable insights in their needs and intentions, such as identifying potential revenue generating funding opportunities and gives us great confidence in our ability to successfully navigate upcoming weeks after operations.

Recently, we secured two new leases for properties that had just vacated, achieving impressive lease terms of 13 years each.

Carla: and recapture rates of 100% or better.

Carla: Yurudev.

We've executed six lease extensions or tenant renewals all at or above 100% recapture with minimal tenant improvements required. Offsetting some of these games, we now have three vacant properties generating higher property operating expenses in the back half of the year.

We are working towards optimal sale or lease outcomes for these assets to reduce these caring costs and are cautious the optimistic about near-term resolutions.

While our overall operating results remain strong and we are executing on our growth initiatives, we continue to see incremental pockets of credit risk as the broader impact from the duration of higher interest rates impacts in consumer-centric industries and entities with less flexible capital structures.

We remain vigilant in our tenant monitoring efforts to maintain great confidence in our portfolio due to a diversified construction, which limits the impact of any potential individual credit event and our proven ability to manage through any substituations that may arise.

Leveraging our core building blocks consisting of best and class-fixed rent escalations, revenue-generating caffax investments in our existing tenants and assets.

Development Funding Opportunities and Traditional Acquisitions gives us confidence as we ramp towards returning to growth in 2025 and 2026. Much of which is already visible through our committed build suit pipeline.

For the current year, we are maintaining our Anthropocite entrainage of $1.41 to $1.43 per shaker.

Starting this year with a view that a neutral AF of over share result would be a positive outcome, given our decision to strategically exit our clinical healthcare assets and redeploy the proceeds in the quality investments.

I am pleased that our accomplishments this year including a reduction in cash DNA.

Wilresault and Modest Grove for 2024.

Carla: and position us to establish a return to growth in 2025.

with an ability to scale and ramp that grow in 2026 and beyond. We made decisions this year that we believe are in the best interest of the NL and its investors for the long term and are confident that those decisions will be to attractive and sustainable AFF over share growth in the NL future.

With that, I'll turn the call over to Ryan who will provide additional updates on our Build A Soup pipeline, completed transactions and portfolio.

Thanks John, and thank you all for joining us today. Before turning to routine portfolio updates, I wanted to provide all of you with some additional details on our exciting and robust built-of-suit pipeline.

As John mentioned, we have made tremendous progress in our continued efforts to advance our build-to-suit strategy. The current pipeline consists of $405 million in committed development with highly attractive initial cash yields in the mid to high 7% range in straight line yields exceeding 9%.

Earlier this month, we closed on the first two of these projects, where initial funding has occurred and construction is now underway.

Carla: This bill the suit opportunity consists of two maintenance repair and overall hangers, commonly referred to as MROs supporting one of our existing tenants, Serenovato Corporation, in advancing a project of significant importance.

Earlier this year, the US Air Force awarded a $13 billion contract to see our Nevada Corporation to develop a successor to the E4B plane.

Over the next decade or so, Sierra Nevada Corporation will assist the U.S. Air Force in replacing their aging fleet of E4B Night Watch Plains, also known as the National Airborne Operations Center for Dunesday Aircraft.

If a catastrophe were to occur that destroyed the military's command to control a centers on the ground, the president would direct forces through an airborne E4B thus the June day term.

BUS Air Force currently operates a fleet of four E4Bs which have been flying since the 1970s and are near at the end of their service lives.

The two emirons that we are building for Sierra Nevada Corporation will be directly supporting this very important project.

Carla: E-Gemore will be approximately 120,000 square feet in size with 75 foot clear heights, a two-story office and an overhead crane system.

They will be located directly adjacent to two of the companies existing Amaros at the dating international airport, strategically positioned within a few miles of right-patterton air force space.

The total estimated cost of these two projects is $114 million in funding is expected to occur over an 18 month period. With estimated completion dates of Q4, 2025 for the first MRL and Q2, 2026 for the second MRL.

Carla: We are grateful for this opportunity to partner with one of our existing tenants and assist in their advancement for such an important project.

In the coming weeks, we expect to close and begin funding the remaining $290 million pipeline of currently committed bill-to-suit opportunities and look forward to sharing further details related to those projects at the appropriate time.

is John noted we are very excited about the progress we have made on this front and believe these investment opportunities.

are highly compelling, featuring newly constructed, well-located buildings with strong tenant credit and yield that exceed most of the regular way transactions we've evaluated since the interest rate hiking cycle began.

and today's environment, these projects will drive future growth as we remain cautious about the regular way transaction market where we have consistently observed a disconnect between pricing expectations and the quality of opportunities.

Carla: Now, turning our attention to our routine quarterly updates.

Alongside our built-to-suit efforts, we closed at 93.9 million dollars of investin opportunities during the quarter, bringing our year to date total to 381.9 million dollars.

This investment activity included $69.3 million of new acquisitions with a weighted average cap rate of 7.2% and an additional $24.6 million of funding associated with our UNFI Bell Disoup and Basmett.

After reaching substantial completion, we are excited to count UNFI as our second largest tenant.

This property is a premier sunbelt asset located in Sarah Sota-Florida that adds tremendous value to our overall portfolio from both an NRI and an AV perspective.

Now shifting to our in-place portfolio.

Transfer Meaning largely unchanged during the third quarter.

Well, we are confident that our portfolio will continue to deliver strong performance and generate durable and predictable cash flows.

Carla: We remain cautious of industries that are sensitive to discretionary consumer spending in tenants who are exposed to persistently higher interest rates on their floating rate that or face near term debt maturitys.

Our Watchlist is remaining fairly consistent this year, and consumer-centric tenants, as well as some of our remaining clinically oriented healthcare properties, remain in focus.

Of particular note, we are pleased with the successful resolution of the Red Lobster bankruptcy proceedings with all 18 of our master lease sites remaining open while realizing a modest rent reduction of 8.25%.

Probably speaking, the home furnishing space continues to be in focus for us, specifically including our tenant at home, which represented approximately 1% of ABR. As a reminder, we own a distribution center and plan in the process of a strong retail site in Raleigh, North Carolina.

Both sides are well-located in strong markets and we believe they would garden our significant interest from alternative users if we were ever to get them back.

Finally, as John mentioned in his remarks, we have substantially accomplished our clinical healthcare simplification strategy. On what remains of our clinically oriented healthcare properties, we continue to work toward optimal distribution outcomes.

Carla: The majority of these sites are under negotiation regarding some combination of least extensions, tent and proven allowances and change of control transactions.

We will manage these situations and strive for resolutions in the near to intermediate term. With that, I'll turn the call over to Kevin to provide an update on our financial results.

Thank you Ryan. During the quarter, we generated AFFO of $70 million or $35 per share. A decrease of 2.7% per share results, you will be here.

Result for Largy Driven by Lower Least Revenue's in connection with our healthcare simplification strategy, as well as incremental expenses associated with vacant assets.

These factors were partially offset by lower cash DNA and interest expenses.

As John and Ryan mentioned, our portfolio continues to show resiliency, realizing 39 basis points of bad debt year to date, excluding your value.

For the full year, we remain comfortable holding our 75-based point bad diverserve and expect some elevated operating expenses to persist in the fourth quarter in connection with current vacancies.

Carla: The continuing trend of DNA coming in below expectations we set at the beginning of the year is primarily driven by lower compensation costs as result of reduced head count and lower professional services expenses.

As a result, we incurred approximately $7 million of cash to an expenses per quarter, and we are lowering our full-year cash to an A guidance to a range of $31 million to $33 million.

We ended the quarter in a strong and flexible financial position once again with a pro-former leverage of 4.9 times, in line with where we ended the second quarter.

At the end of the quarter we had unsettled forward equity of approximately $39,000 an estimated net proceeds.

which combined with approximately $870 million of revolver availability gives us ample capacity to fund our committed Delta student investments and evaluate incremental investment opportunities.

At our quarterly meeting, our Board of Directors to clear the dividend of 29 cents per comment sharing OPE unit, payable to holders of record as of December 31st, 2024 on our before January 15th, 2025.

Our dividend represents an attractive yield relative to many of our peers, remains well-covered, and will continue to be more closely aligned with our targeted AFF-O payout ratio in the mid to high 70% range.

As John mentioned, we are reaffirming our AF of Boat Gatton's range of a dollar 41 to a dollar 43th year.

Carla: In addition to the cash, DNA reduction I previously mentioned, we're lowering the high end of investment guidance from $700 million to $699.

Please drop in last night's earnings release for additional details and we'll now open call of questions.

Thank you. We will now begin the question in as a session. If you'd like to ask a question, please best are followed by one on your telephone tape at. If you change your mind, please best are followed by two. When preparing to ask your question, please ensure your line is in view to locally.

So our first question comes from Eric Borden from BMO. Eric, you're line is open.

Hey good morning everyone, John, just maybe on the guide, you know.

What's keeping you from raising at this point in the year? Just, Ryan collection through Officer Quenchily, UNFIs, now online, and I had a schedule and cash DNA tracking well. Is it really just the offset from increased expenses in the back after the year?

Hey Eric, that's exactly it. This was all things that we anticipated coming. You know there were an awful kind of credit event that we had earlier in the year that had to work their way through the process, where we knew the impact was going to hit in Q4.

and I'm sure that there was also some additional carrying costs on some of the vacant assets that we're going to have between now and the end of the year. We're confident that we've got some resolutions to take care of those in this quarter so that we will be on a better footing going into Q1. But these were things that we took into account as we set the guidance for the year and why we're comfortable holding where we are.

Speaker Change: Okay, that's helpful. And then maybe just turning to the acquisition environment. You know, just can you just discuss what you're seeing today more broadly in terms of volumes and cap rates? And, you know, if you were to acquire traditional net least assets.

You know what cap rates are currently targeting and know you guys are focused on. They're building a suit environment just curious if there's any opportunities in the near term for you guys.

Yeah, so I think it's pretty consistent for what we've been saying in the last quarter or two, and that there's not a whole lot that's out there right now that we really like, there's certainly volume.

Speaker Change: and the risk adjusts the returns on those are also how we think about investing in regularly transactions, artists are working for us. Now they're certainly cost a capital component to that. We are solidly in a seventh in the way that we're thinking about what the action more is.

Speaker Change: But the things that are there aren't necessarily penciling for us in the way that you would want to see. So what we've been telling a lot of investors, and Eric, you've heard of say this, has been if you want to understand the way that we're thinking about the regular transaction market, look at where we're allocating capital today.

and the place where we're allocating capital is primarily into our build and sea pipeline. You think that is a really compelling differentiated strategy. And so we are much happier allocating there where we're getting mid-Seven cap on up front initial cash cap rates. With our capitalized interest and we're getting straight line yields in the nines.

That's a really compelling place to allocate capital and we're much happier doing that than chasing things down on a price basis in the regular return to action market.

Okay, that's up for...

and then just on the acquisitions in the quarter, we noticed that annual bumps were above the portfolio average and what's been required here today. So you could just talk about what's a unique situation we're able to drive annual bumps higher or is this kind of the expectation going forward for you guys?

Speaker Change: I think a lot of it has to do with the waiting that we have towards our industrial portfolio.

The bumps that you see in regular way retail and restaurant assets are always more muted than what we're able to get in the industrial sector. And so when you wait out what we've acquired this year and get down into the particular, what we have, particularly in this last quarter, the majority of us in industrial, we're able to command a higher...

and I think that's why when we talk about our forecore building blocks, the first one there is weighted average rent bumps of 2% which is highest tier in the space.

Speaker Change: Thank you very much.

Our next question comes from Anthony Paul Loan from JP Morgan, Anthony your line is open.

Thanks. I just wonder if you could talk a bit more about just...

You know, thinking into next year and investment spending, if it sounds like acquisitions will just be a much smaller piece of this. So just trying to think of that.

Anthony: A fair and maybe B, like, you know, what is the order of magnitude? Because, you know, historically you have done a pretty meaningful amount of investing and if it's just going to be build the suits going forward, you see, like, the capital out the door, be a lot smaller as that builds.

Yeah, so I think if you're talking about capital in the near term, potentially yes, it might be smaller.

When you start looking out to the nine month, excuse me, the nine month, three quarter period that we were talking about in our remarks, where we've got the ABR associated with allocating $420 million worth of additional investments, it's right in line with what we've done historically.

It's just on a sort of longer term view of the way that we're thinking about the world and with our...

Focus now on lattering out those buildings so that way we're having conversations today about what else can we have for 2026? Are there things that are going to come online at the end of 26 and the beginning of 27?

Once you ladder into that, we're not going to have that conversation of how much are you putting out because we'll be doing it on a consistent basis quarter over quarter year over year as those build the suits come online. On the short term.

We'll continue to be opportunistic and look for acquisition that makes sense for us and if we see those will go after Particularly those direct relationship based deals that is the majority of what we've done this year Most of what we've done this year from a regular way of transaction investment perspective

has been with existing relationships, direct deals, things like that. We're not going after a lot of things during the regular retransaction market.

I still think there's a lot of uncertainty in the regular transaction market. I mean, even if you take the last six weeks or so, people have been waiting this entire year for the Fed to put interest rates with the hope that you're going to get some certainty around rates and maybe you'd start to see rates come down and cap rate the just and seller expectations and buyers expectations starting to align better.

But if you take from when the Fed cut rates, some September 19th to today, I mean the Fed cut rates by 50 basis points and you've seen 60 basis points of increase in the 10 year. So I'm not sure people are seeing the environment that they were looking for in the hopes that you'd get a better regular transaction market.

Speaker Change: That's not something that we were banking on and planning for. We were planning to control our own destiny with the build-a-suit program with our 4-core building blocks and we're very comfortable as we go into 2025 as the type of growth that we can train in January in 2025 and more in 26.

Speaker Change: Okay.

Thanks for that. And then in terms of dispositions on a go forward basis, you talked about just helped care slowing down and just doing the rest of that over time. But any other parts of the portfolio that we should think about as likely coming up for sale or as a source of funds, you know, really in 2025.

Speaker Change: Yeah, I think it's more a traditional asset manager strategy this point. We've got the 4% remaining of the clinical health care that we'll be working on. Some of those will look to execute in 2025. Some of those may take a little bit longer.

We have our office assets, which is about 5.8% of our ABR. There's no real rush there. There's plenty of opportunity in the coming years to evaluate and find good solutions for those office assets, and we don't have to go out and like that value on fire.

So from here on out, it's going to be more of a traditional asset management strategy where we'll be looking to mitigate some risks, take advantage of some arbitrage, do the stuff that you would expect us to do. And years outside of this one, when we had those strategic focus on clinical health care.

Speaker Change: Okay, so I got thanks.

Thanks for watching.

Our next question comes from Oparana from Kate, Keybank Capital Market, who thought your room reliance not open?

Oparana: Thanks for taking my question. John, with two thirds of the healthcare, this was just out of the way. Another is about a third left, you know, and you kind of mentioned that there's going to be, there would be mostly one off. He sure, with the appetite, could be for providers for the remaining assets.

This is going to be, you know, as I said, and you repeated sort of the one off nature. So, these are going to be individual discrete, local regional buyers, folks that have a particular interest in that asset and that property from operating standpoint. So, we'll take our time on it and the main reason for taking that time on it is that we want to try to maintain as much value as possible.

Speaker Change: and the Reds. There's always a buyer at some price, but we're not a seller at just any price, so we want to make sure that we find the right person in the right situation and if that means we need to be patient and work on a lease extension, do some tenant improvement, work through a credit event, something like that. We'll make sure to do that to try to maintain as much value as possible.

Speaker Change: Okay, guys, that was helpful. And then, I mean, you are allocating more capital towards built-in shoes, but could you give us some details on what the competition has looked like in the transaction market?

Speaker Change: and do you think there could be some exhaustion from sellers where you may begin to allocate more capital towards traditional acquisitions.

We certainly are open to it and we'll be as optimistic as possible.

The place that we play the most in, sort of that in the market, industrial deal has been incredibly competitive this year with bid processes that look like they did back in 2021 and 2022.

Speaker Change: We haven't seen any exhaustion yet, but at the same time, as I mentioned, a couple of questions ago in terms of where the rate environment went, people's expectations don't seem like they have been met in terms of what they were hoping for in the back after this year.

So it's possible that you start to see some good speculation here and there as people get used to a higher for longer environment. We'll wait to see where a point is ready to jump on that and got a 175 million of available capacity on our line right now as I said in my prepared remarks.

and the BILD-SUE program. We say comfortably below six times on a lever to basis all the way through the end of those investments. And so we've got ample opportunity to be opportunistic and go out and buy some things if it makes sense.

Speaker Change: and the next one is the first one.

Speaker Change: Thanks a ton.

Our next question comes from Jay Cornrich from Black Blue Securities, Jay Dr. Lannes now open.

Hi, thank you very much. During the past quarter you issued a small equity forward in your first two years, and some cases, as the focus switch is from properly positioning to now growth, how do you think about issuing equity capital to fund transactions going forward?

Speaker Change: The environment certainly more constructive and outlaws earlier this year. We are very pleased to issue the £30 million in AT&T Pro 2.4 basis.

It was great to get back in the market and sort of let the world know that we're open for business. It was a long two years between times when we had issued equity. So we were very excited to do that at the same time. We're not currently trading in a place where we would feel that excited to go out and do a huge amount of equity.

of course you have to mash these things up. It's a bit of a dynamic equation in terms of what the opportunity set is, what are the yields that we're getting. So the 39 million that we raised was a compelling opportunity relative to the long term.

Street Line yields that we're getting on the build-a-suit program in the nine cap range.

Speaker Change: So we're pleased with that, but at the same time we'll be cautious going forward. There's always a diluted impact from raising additional equities. So if the opportunity set, the yield and where our cost of capital stands relative to where our stock price is trading, we're happy to do it.

and I'm putting this thing at today. We don't need it, so we're not planning on going on doing a whole lot more.

Okay, thank you for that. And then just, you know, with the focus on the built-in suit development, which now stands at, you know, roughly $420 million. Is there any kind of goalpost of how large you want to build this platform into and as it continues to grow, how do you think about, you know, the funding of all these commitments that they ultimately start coming online?

So, we're funding standpoint, it's not all together that different from the way we were thinking about it normally. We have the capacity today. We don't have any near-term debt maturitys. We'll deal with those in turn. But we'll look at funding pretty similar to the way that we have in the past for the rest of our pipeline. In terms of the capacity and the hope for the future with this, we're looking to make it as big as possible.

Speaker Change: We've got an opportunity here filling out as I said, you know, ABR of about 33 million that will come online sometime between Q4, 2025 and Q2, 2026.

Speaker Change: Sitting here today being able to tell you that feels pretty exciting and pretty differentiated from what you would traditionally hear in the net least space. So our hope is to be able to ladder this out going into the future, filling out the rest of 2026, start thinking about 2027.

This is a differentiated strategy that we believe is unique to us with our industrial focus, with the ability to do large chunky deals and with the relationship that we've been able to build, with the developers, with our tenants, as a unique funding source for them, gives them surety of clothes and one stop shop.

makes it easier for them to grow their businesses and to find projects and then to move on to the next one. So this is something that we're very excited about.

Okay, thank you very much.

Hey, and the next question comes from Ryan Carveola with Green Street. Ryan, your line is not open.

Thank you and good morning, nice to take a more question. I just want to see if you could provide a bit of detail on the two new industries you entered last quarter and maybe share some thoughts on where you're looking to increase exposure or versus where you might feel you've reached optimal levels in specific industries.

Sorry, can you repeat that again?

and Kevin Perth. Yeah, just, no, it's just that you, the industry count one FI-2 for the quarter. So just if you could provide some color on those two new industries, you entered and if you're going to interest in increasing exposure, thank you.

Yeah, I'm blank at the moment. We moved into a different, fast, of sort of automotive services. One of our, well, the largest acquisition we had in the quarter was the company called Magnus Seeding, which is based outside of Detroit.

Speaker Change: Services, the auto industry there in terms of providing different versions of seats and automotive products for them. So it's a bit of an expansion of what we've already been into. But...

Speaker Change: To make it a heart of your question, the diversified nature of our portfolio is something that we take quite seriously. The having a tenant base where we don't have any individual tenant that's larger than 4%.

The number of industries, the number of overal tenets that we have is incredibly important, because it helps mitigate the risk of any individual single tenet event causing a significant problem for us.

and to your point on the industries, it's not just an individual tenant risk, it's also individual industry risk. If you think about our loss list right now, looking at furniture and some of the clinical health operators, the more industries you have and the portfolio, the better off that you can be in terms of mitigating the risk. So increasing that over time is a good one.

Speaker Change: Thank you. And then that's an investment activity in general, it's kind of, but 70, 30 industrial to retail. Just wanted to see if you expect that mixed to remain steady or if they're emerging opportunities in either sector that might shift that balance going forward.

Speaker Change: Yeah, I mean we've been pretty steady on that for a while now I think if you go back even five years in terms of our investment activity 70% of its spending industrial.

and that has been a long time coming, I would say, in terms of the overall industrial focus that you go back to 2018, our industrial portfolio is much smaller than it is today, and where it sits now is the predominant portion of what you have.

We are in Boulder and we're optimistic so we were to see good opportunities in retail and restaurant assets. We would certainly go after and we're not afraid of doing that and we do like the diversification going back to your first question. But 70-30 is a relatively sort of part of the course split for us. I think going forward.

Great, appreciate the color, thanks guys.

and the other.

In Q&A, our next question comes from Ronald Pondon with Morgan Stanley, Ronald, your line is not open, please go ahead.

Speaker Change: Hey, it's Jenny Alvaron. Good morning. Thank you for taking my question. I think the first one will go on a follow-up on the build-up suit opportunities.

So are you guys open to any, this kind of opportunity with the, any new town on the relationship at this point and going forward if you do the like how would you make investor comfortable with the development, like development risk and town on risk, that really is your end

Speaker Change: Thanks.

and the next one.

Yeah, thanks very much with the existing tenants, absolutely, this is.

sort of a marriage between the second and third core building blocks of our strategy here where we certainly are looking to do revenue generating cat-tox projects with our existing tenants. But if they have new build-to-suit opportunities to learn more, we're happy to do that as well and sort of shift from that second to that third core building block.

This most recent one that Ryan talked about his remarks to your Nevada corporation. It's a great example. They were in existing tenant already in the portfolio. We have this wonderful opportunity to partner with them.

and the construction of these two MRO facilities that are made for an incredibly important project for the U.S. Air Force and the Defense Department.

Speaker Change: We're happy to do that with more and from a risk standpoint I mentioned it in my remarks and we've talked to some investors about one more detail. We're not taking traditional development risk.

and I think first and foremost it's important to note that we're not doing speculative development. These are all development projects where we have an identified tenant in place who will start paying rent when the project is completed. You know, we're not sort of building a hole in a dream here. And the second thing is in the structure of the deals that we're doing.

We are putting in place sort of risk mitigates to ensure that if we are ever in a spot where we are taking on more traditional development risk, we are sort of the pocket of last resort if you will.

So it's something that is absolutely important to us. We are not looking to take on traditional development risk and you know happy to go on more detail with hopes on that if it's needed.

Speaker Change: Yeah, make sense. So are you open to beautiful suit opportunities with a new talent and relationship at this point?

Yeah, I mean any new Senate that has an opportunity for us, we're happy to take a look at whether every individual deal will pencil or not, it is an open question.

Speaker Change: But we are running projects with large as 200 million as we did with UNFI to a small as 2 million per site with a small QSR profit concept. So we're happy to do things as large as a man and smaller than that and everything in between.

Okay, my sense. The second is, can you remind me of what happened to the Green Valley Medical Center?

Speaker Change: Yeah, so that's a vacant property right now. There's no rent associated with it. There hasn't been any of this year that won't be next year. We're managing through the carrying cost and the hope is that we'll have a resolution to sell that very quickly. So it's not something that shouldn't really be on anybody's right anymore.

Oka, make sense, all you think so much.

Speaker Change: Action.

Speaker Change: Before we take our next question, I would just like to remind everyone they've who'd like to ask you question, please press star follow by one on your telephone keypad

Our next question comes from...

The line of Caitlyn Arrows from Goldman Sachs

Hi, good morning everyone. I think earlier in the prepared remarks you did mention that there could be some pockets of credit risk that you see which is limited to by diversification, but could you talk a little bit more about the risks you are seeing?

Speaker Change: Yeah, thanks again on OTA's The usual suspects. You know, we're pleased with how Red Lobster went, but we need to see some sustained performance from them on the backside of it, for them to come off the watch list.

Talks about at home, we're paying close attention to what's happening there, but their performance is really concerned from a corporate credit and a structuring issue as opposed to sort of the site level and the real estate there is pretty compelling.

will manage that just fine. We're also paying attention to a handful of smaller operators and sort of the furniture industry, home goods.

as well as we've talked about the clinical health care. There's a handful of operators there that have some credit issues that they're working through right now and we're helping them through. So, usual suspects for us.

and then maybe just also on the restaurant side. I feel like we've heard that there's some difference in how various different concepts are doing and it might relate to whether it's sit down or quick service, et cetera. But could you give some further comments on how the restaurant portfolio is doing?

Yeah, so the restaurant fourth point overall. I think we picked up a little bit and sort of waited to have her drink coverage from I would say about a three three for this quarter, but if you go down in particular, I mean the lowest performer for off on a site level basis is, is, about a two and then it ranges up to things in the course, so you got stuff in between so overall very pleased with where our restaurant set.

and maybe just another follow-up on the built-in suits. It sounds like a lot of the deals you're doing are with existing tenants, which generally makes sense. Given the size of the industrial properties, though, it seems like deepening those relationships would increase concentration somewhat. So it just said they increased from some really small amount to something larger that's still not a concern, or how do you balance that kind of concentration piece.

Speaker Change: yeah

We have a pretty hard line that we're not going to go above 5% on AVR bases within the individual tenant. It's been a difficult line sometimes because there's opportunities that we've had to go above 5% but we're just not comfortable with it from a risk of getting standpoint. So we've had to unfortunately decline some opportunities that we've seen in the last 12 months.

As the top 10 and top 20, 10 of concentration gets a little bit higher, as some of these larger projects come online, we're perfectly comfortable with that. We're already sort of top tier in terms of what the lowest concentrations are, and adding a little bit to that can be fine, but the hard line for us is really that keeping every individual tenant at a half a low 5%.

Speaker Change: Got it, thanks.

Speaker Change: Thanks for watching.

The next question comes from Kivitium from Trist.

and things as a couple of follow-ups here. On the 420 million of forward development funding commitments.

Speaker Change: and your...

and Professor Lee Ciccio, you know, a few projects that UNFI and Sierra Nevada. Is it just safe to assume that most of the remainder is industrial projects and I've been thought about maybe enhancing the development schedule on your supplemental fort.

We've got enough to get to one of the top of the mental, that gives one more detail and will be adding to it over time.

and what's in the next.

Speaker Change: and the project to come is predominantly weighted towards industrial. We have a little bit of retail in there that you'll see when the schedule gets updated. The intention is to start updating these on a more regular basis, not core or recorder, so you should expect to see some processes from us with an updated schedule. Hopefully we've been able to close these even potentially before Neri.

and the additional development deals. Are these directly sourced or was this again through the San Son group? Just to understand the origination process.

Yeah, so either direct through the developer or direct with the tenant in Sierra Nevada Corporation's situation.

and not just your sense on, we're working with a couple of different developers at this point in expanding those relationships over time.

As I said in my compared to Mark's old developers, you know, are looking for someone that's going to provide them with some security with some consistency, we're simplifying the process for them where they used to have to find three different buckets of capital to make a development project work, they now just need to work with us.

Speaker Change: So these are our compelling opportunities for us and compelling for them so they can move on to the next deal where they're going to be looking to grow their business. So these are relationships that are incredibly important and every deal that we have in our pipeline right now from a build to suit standpoint is either direct or as a relationship based on.

and then just last one on page 18 and yourself in the month there's a comment that revenue and additional funding will receive a cash cap rate of 6.8% just carries what that means.

Gak, you've been at the close out sort of punchless items for UNFI and sort of yield potential from the ongoing project build and the close out and the primary gap of the different is how the capitalizing choices earned under the contract.

Speaker Change: Okay, thank you.

Speaker Change: Thanks, Kevin. And as a final reminder, if you would like to ask your question, please press star for the by one on our telephone keypad. Our next question comes from me to the term A from Citizen TMP.

Speaker Change: Meach your line is not open.

Speaker Change: Let you go check if you're in the onlook please.

Speaker Change: The New Year's Day

Speaker Change: i

Speaker Change: i

The, that was our last questioner. I will hand back over to John Morano for any closing remarks.

Thank you. And thanks everybody for joining us today. As you can hear, we are incredibly proud of what we've accomplished this year. We're very excited about what we're building and where we're headed and looking forward to talking with all of you in the coming weeks and seeing many of you at A-Ri. Thanks all and have a great rest of your day.

Speaker Change: That this concludes the Broadstone at least 3rd quarter 2024 Ernest Conference Call. Have a nice day, you may not be scared.

Speaker Change: [inaudible]

Speaker Change: i

Speaker Change: [inaudible]