Business Overview
Broadstone Net Lease, Inc. (NYSE:BNL) is an industrial-focused, diversified net lease real estate investment trust (REIT) that has demonstrated its ability to navigate the evolving real estate landscape through a differentiated growth strategy centered around build-to-suit developments. With a portfolio of 765 properties spanning 44 U.S. states and 4 Canadian provinces, Broadstone has established itself as a leading player in the net lease sector.
Broadstone Net Lease, Inc. was formed as a Maryland corporation on October 18, 2007, and elected to be taxed as a real estate investment trust (REIT) commencing with the taxable year ended December 31, 2008. The company operates through its operating company, Broadstone Net Lease, LLC, which owns the company's properties either directly or through subsidiaries.
In its early years, Broadstone Net Lease faced the challenge of building a diversified portfolio and establishing its presence in the net lease real estate market. The company executed numerous property acquisitions, leveraging its relationships with brokers, developers, and tenants to access off-market and marketed investment opportunities. Broadstone Net Lease maintained a focus on investing in properties operated by creditworthy single tenants in industries with positive business drivers and trends.
As of December 31, 2024, Broadstone's portfolio comprised approximately 39.4 million rentable square feet, with a diversified mix of industrial (59.6% of ABR), retail (31.2% of ABR), and other property types. The company's investment strategy is centered around four core building blocks: 1) embedded same-store net operating income growth, 2) revenue-generating capital expenditures, 3) build-to-suit developments, and 4) a diversified acquisition pipeline. This multi-pronged approach has enabled the company to deliver consistent financial performance and position itself for continued growth.
Financial Performance
For the full year 2024, Broadstone reported total revenue of $431.80 million and net income of $168.99 million, or $0.86 per diluted share. Adjusted funds from operations (AFFO), a key metric for REITs, came in at $282.00 million, or $1.43 per diluted share, representing a 1.4% increase compared to 2023. This strong AFFO performance was driven by the company's successful execution of its growth strategies, including $404.82 million in total investments during the year.
The company's annual operating cash flow for 2024 was $276.25 million, with free cash flow of $259.46 million. In the most recent quarter (Q4 2024), Broadstone reported revenue of $112.13 million, representing a year-over-year growth of 6.72%. However, the company experienced a net loss of $1.22 million in Q4 2024, primarily due to a $49 million impairment charge related to the company's long-term hold strategy for certain properties.
Liquidity
Broadstone's balance sheet remains healthy, with a pro forma net debt to Annualized Adjusted EBITDAre ratio of 4.9x as of December 31, 2024. The company has ample liquidity, with $907.00 million available on its $1 billion unsecured revolving credit facility, providing flexibility to fund future growth initiatives.
As of December 31, 2024, Broadstone reported cash and cash equivalents of $14.85 million. The company's debt-to-equity ratio stood at 0.6369, while its current ratio and quick ratio were both 1.60, indicating a strong short-term liquidity position.
Differentiated Build-to-Suit Strategy
One of Broadstone's key differentiators is its focus on build-to-suit developments, which accounted for $115.32 million of the company's total investments in 2024. These projects, which have initial cash capitalization rates in the mid- to high-7% range and straight-line yields in the mid-8% to mid-9% range, provide Broadstone with attractive long-term, risk-adjusted returns.
As of December 31, 2024, Broadstone had $227.3 million in committed build-to-suit developments, with an additional $700 million in active discussions. The company's strong developer relationships and expertise in structuring these transactions have enabled it to build a robust pipeline of high-quality, mission-critical facilities for creditworthy tenants.
Looking ahead, Broadstone has set a goal of adding at least $500 million in new build-to-suit commitments in 2025, further strengthening its laddered development strategy and derisking its long-term growth profile.
Portfolio Repositioning and Diversification
In 2024, Broadstone made significant progress in simplifying its portfolio, selling 58 clinical healthcare properties for gross proceeds of $364.00 million. This strategic move reduced the company's exposure to the clinical healthcare sector from 9.7% of ABR at the end of 2023 to just 3.2% as of December 31, 2024.
Broadstone's updated core property types are now industrial, retail (including restaurants and medtail assets), and other. This streamlined portfolio aligns with the company's focus on industrial and e-commerce-resistant retail assets, which exhibit strong fundamentals and tenant creditworthiness.
As of December 31, 2024, Broadstone's portfolio was approximately 99.1% leased, with a weighted average remaining lease term of 10.2 years. The company's diversified tenant base, with no single tenant accounting for more than 4.1% of ABR, further enhances the stability of its cash flows. Approximately 97.4% of Broadstone's leases have contractual rent escalations, with an ABR-weighted average increase of 2.0%.
Geographically, Broadstone's properties are well-distributed across the United States and Canada, with no single state or province exceeding 9.6% of the company's ABR. The top five states by ABR are Texas (9.6%), Michigan (9.2%), Florida (6.5%), California (6.1%), and Illinois (5.8%).
Guidance and Outlook
For 2025, Broadstone is initiating an AFFO guidance range of $1.45 to $1.49 per share, representing approximately 3% growth at the midpoint. This outlook reflects the company's confidence in its ability to execute on its differentiated growth strategy, including the continued expansion of its build-to-suit development pipeline.
The company expects investment volume to be between $400 million and $600 million in 2025, with disposition volume projected at $50 million to $100 million. Core G&A expenses are anticipated to be between $30 million and $31 million. Broadstone has also factored in 125 basis points of bad debt in their 2025 guidance.
As of the latest report, Broadstone has $103.5 million of acquisitions under control and $5.4 million of commitments to fund revenue-generating capital expenditures with existing tenants. Additionally, the company has $227.3 million of high-quality build-to-suit developments scheduled to reach stabilization during 2025 and 2026.
Broadstone's management team has also expressed optimism about the potential to provide a preview of its forecasted run rate growth for 2026 and 2027, as the company's core building blocks and successful execution in 2025 are expected to contribute to its long-term performance.
Risks and Challenges
As with any real estate investment, Broadstone faces various risks, including tenant defaults, competition for acquisitions, and changes in market conditions. The company's exposure to certain industries, such as retail and healthcare, could make it vulnerable to economic downturns or shifts in consumer preferences.
Additionally, Broadstone's reliance on debt financing, including its Revolving Credit Facility and term loans, exposes it to interest rate risk and the potential for increased borrowing costs. The company's ability to maintain its investment-grade credit ratings and favorable access to capital markets will be crucial in managing its leverage and funding future growth.
Conclusion
Broadstone Net Lease has demonstrated its ability to navigate the evolving real estate landscape through a differentiated growth strategy centered around build-to-suit developments. The company's diversified portfolio, strong financial position, and focus on industrial and e-commerce-resistant retail assets position it well for continued success.
As Broadstone continues to expand its build-to-suit pipeline and execute on its other core growth initiatives, investors should closely monitor the company's progress in delivering on its guidance and long-term outlook. With a solid track record and a clear strategic vision, Broadstone appears well-equipped to capitalize on the opportunities in the net lease sector while maintaining a disciplined approach to portfolio management and financial stewardship.