Hello, and welcome to Broadstone Net Lease's Second Quarter 2021 Earnings Conference Call. My name is Andrew, and I will be your operator today. Please note that today's call is being recorded. I will now turn the call over to Mike Caruso, Senior Vice President of Corporate Finance and Investor Relations at Broadstone. Please go ahead.

Thank you, operator, and thank you, everyone, for joining us today for Broadstone's Second Quarter 2021 Earnings Call. On today's call, you will hear from our Chief Executive Officer, Chris Czarnecki; our Chief Financial Officer, Ryan Albano; and John Moragne, Chief Operating Officer, who will participate in Q&A. Before we begin, I'd like to remind everyone that the following presentation contains forward-looking statements, which are subject to risks and uncertainties that can cause actual results to differ materially due to a variety of factors. 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 31, 2020, for a more detailed discussion of the risk factors that may cause such differences. 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 Chief Executive Officer, Chris Czarnecki.

Thank you, Mike, and welcome to everyone joining our Q2 2021 earnings call. I hope that our listeners are having a safe, healthy and enjoyable summer. It's hard to believe we are quickly approaching the one-year anniversary of our initial public offering. We could not be prouder of all that the BNL team has accomplished since entering the public markets and where we are currently positioned as we move toward the second half of the year. During Q2, we continued to execute on our growth objectives while simultaneously strengthening our balance sheet to position BNL for a strong second half of the year. Our defensive growth profile remains exceptionally attractive. The predictability and consistency of our portfolio's operating profile, as evidenced by the collection of 100% of base rents due during the quarter, affords us the ability to focus intently on external growth. I'm pleased to see our stock continue to season in the public market, which further enhances liquidity and access to capital and allows us to continue to grow earnings through accretive acquisitions. During the quarter, we successfully executed on our first follow-on offering, which has positioned the balance sheet to continue to support growth in the second half of the year. Ryan will provide additional detail on capital raise activity in a few moments, but I would first like to provide an update on Q2 investment activity. During the quarter, we closed seven transactions comprising 34 properties for a total investment of $194 million at a weighted average cash cap rate of 6.2%. The leases include 1.4% weighted average rent escalations and a 13.2-year weighted average lease term. Acquisitions completed during the quarter were more heavily weighted toward industrial at 57% with a smaller concentration of health care and retail properties at 24% and 19%, respectively. When compared to a more retail-dominated first quarter of the year, the change in property type mix for acquisitions completed during Q2 demonstrates the strategic benefits of our diversified strategy. Our approach to net lease investing allows us to pivot quarter-over-quarter, depending on the opportunity set available, without dramatically altering portfolio concentration levels. This affords us the opportunity to be patient and selective, ensuring we are acquiring the best investments on a risk-adjusted basis within each of our core property segments. In July, we also acquired an additional seven assets for $34.2 million in the industrial and retail spaces via four transactions. I would now like to give a brief overview of several of the key transactions completed during the second quarter. First, we acquired 11 mission-critical industrial properties in a sale-leaseback transaction for a total of $106.6 million at an initial cash cap rate of 6%. The properties are leased to Ryerson, a leading metal processing and distribution company. The properties are in geographically diverse markets that are strategic to the tenant's operations across 10 different states. Leases include a 15-year initial term and a 1.5% annual rent escalator, translating into an average annual yield on investment of 6.7% over the term. This transaction demonstrates our ability to continue to source accretive industrial acquisitions that complement our existing portfolio despite tight levels of competition in the industrial space. While a slightly larger transaction, Ryerson represents only 2% of our ABR as of quarter end, and our tenant diversification as measured by our top 20 tenants remains among the best in the net lease space. We also added 11 health care properties through two transactions for a total investment of $46 million at a weighted average initial cash cap rate of 6.3% during the quarter. The properties included a diversified portfolio of seven veterinary clinics as well as four properties leased to a strong regional health care provider, offering ambulatory surgery, diagnostic imaging, urgent care and rehabilitation services. The properties are subject to a weighted average annual rent escalation of 1.7% and have a weighted average lease term of approximately 10.5 years. Both health care transactions completed during the quarter highlight the granular diversification within our portfolio, especially within the health care vertical. The veterinary space is one which we've invested in for many years and view as an attractive adjacency to our core health care investing, given its strong business fundamentals and the growth profile of our national tenants. We continue to view health care as a unique differentiator for BNL and remain focused on sourcing additional opportunities in this core property segment. Finally, we added nine store locations that were sourced by our small transaction investment-grade retail process for a total investment of $13.4 million at a weighted average initial cap rate of 6.6%. The properties are located in the Southeast and have a weighted average lease term of 8.5 years and a weighted average annual rent escalation of 0.4%. Given our size, knowledge of these tenants and streamlined acquisitions process, we have the unique ability to quickly and efficiently transact on one-off investment-grade retail acquisitions that help bolster our routine sourcing efforts. Our growing small transaction investment-grade pipeline ensures consistency in deal flow throughout the year that supplements our larger sourcing efforts. Acquisitions during the second quarter and in July bring total volume for the first seven months of the year to $315.5 million. We currently have an additional $211 million of assets under our control, which we define as under contract or executed letter of intent. These opportunities are well diversified across industrial, health care and retail assets and bring our year-to-date volume closed and currently under control to $526 million. The substantial majority of under-control acquisitions are expected to close in the second half of the year, but the under-control total also includes a forward commitment currently scheduled to fund in 2022. With solid momentum and increased visibility into the pipeline for the second half of the year, we are raising our full year 2021 acquisition guidance by $100 million to a range of $550 million to $650 million. Ryan will provide additional detail regarding further guidance revisions in a few moments. As of June 30, we owned 684 net lease properties located across 42 U.S. states and one property in Canada, and portfolio occupancy remained steady quarter-over-quarter at 99.7%. Only six of our 684 total properties were vacant at quarter end. The portfolio had a weighted average remaining lease term of 10.4 years with 2% weighted average annual rent increases. Our forward lease maturities continue to be negligible and represent just 0.1% of ABR in 2021 and a total of 2.4% of ABR through 2023. I'll now turn the call over to Ryan to provide additional detail on our Q2 results, the execution of our most recent follow-on offering and our full year 2021 outlook. Ryan?

Thanks, Chris, and thank you all for joining us today. I'm excited to share additional detail on our recent capital raise activity and corresponding balance sheet positioning, discuss our second quarter results as well as provide an update to our full year guidance. During Q2, shares of BNL continued to season in the public market due to a variety of factors, including most notably, index inclusion and continued market acceptance of our defensive growth profile. I'm very pleased to see the momentum as it further validates our differentiated strategy and enhances our access to capital, allowing for continued execution of our external growth objectives. On June 28, we successfully executed on our first follow-on offering, issuing 11.5 million common shares at a price of $23 per share less underwriting discounts and commissions for net proceeds of $253.5 million. We used the proceeds to immediately pay down all outstanding borrowings under our $900 million unsecured revolving credit facility and intend to use the remaining proceeds to fund future acquisition opportunities. Following the completion of the offering, our net debt was approximately $1.4 billion, resulting in net debt to annualized adjusted EBITDAre of 4.76x at quarter end. As a reminder, we currently hold a BBB rating from S&P as well as a Baa3 rating from Moody's and intend to maintain a leverage target of less than 6x on a net debt to annualized adjusted EBITDAre basis. Limited near-term debt maturities, a robust liquidity profile and ample leverage capacity position us to continue to pursue accretive acquisition opportunities in the second half of the year. We remain committed to maintaining a conservative balance sheet and maximum financial flexibility to support our defensive growth mentality. Now turning to our second quarter financial results. We reported AFFO of $52 million during the quarter or $0.33 per diluted share. These results represent an increase of $0.02 per diluted share or 6.5% when compared to Q1 2021. The increase quarter-over-quarter was primarily driven by acquisitions that closed late in the first quarter, second quarter acquisition activity and a full quarter of interest savings from the repricing of our unsecured term loans during the first quarter of the year. During the quarter, we incurred total G&A expenses of $8.7 million, inclusive of $7.7 million of cash G&A. In addition to the acquisition guidance revision that Chris referenced a few moments ago, I would like to provide an update to our full year guidance that reflects our confidence in the strength of the acquisition pipeline and the corresponding impact to our current year outlook. For fiscal year 2021, we currently expect to report total AFFO per diluted share between $1.30 and $1.34, which represents an implied growth rate of 10% at the midpoint over our annualized Q4 2020 results of $1.20. This guidance is based on the following key assumptions: acquisition volume between $550 million and $650 million; disposition volume between $50 million and $100 million; and total cash G&A between $32 million and $34 million. As a reminder, our per share results for the year are sensitive to both the timing and amount of acquisition, disposition and capital markets activity that occurs throughout the year. Finally, at the Board meeting held on July 29, the Board declared a $0.255 distribution per common share in OP unit to holders of record as of September 30, payable on or before October 15. We will continue to evaluate potential future increases to our dividend with the Board on a quarterly basis and intend to target a long-term AFFO payout ratio of approximately 80%. With that, I will turn it back over to Chris for closing remarks.

I'd like to conclude today's prepared remarks by reiterating my confidence and excitement in where we are positioned today heading into the second half of the year. Our defensive growth focus, grounded in industry-leading diversification, has proven to result in a predictable operating profile, which allows us to focus on executing on our external growth objectives. A conservative balance sheet and robust liquidity profile resulting from our inaugural follow-on offering has positioned us to execute on an exciting pipeline of acquisition opportunities. I hope all of our listeners have a relaxing and safe conclusion of your summer, and we look forward to connecting again with you in the fall. This concludes our prepared remarks. Operator, we can now take questions.

The first question comes from John Kim with BMO Capital Markets.

I had a question on the Ryerson portfolio that you made during the quarter. Can you comment on the seller, whether or not it was a sale-leaseback transaction? And regardless, if there's an opportunity to do more transactions with the seller? Okay. And my second question is on the earnout. You earned the first two tranches of it. It looks like given your share price performance, you were on pace to obtain the final two tranches in the fourth quarter this year. Can you remind us what is your expectation and what's contemplated in guidance for the year?

John, sure. It was a sale-leaseback transaction with Ryerson Corporate. They executed on our lease form, which was positive in our view, and it initiated a very good relationship with them. To your question about future business, that's a reasonable expectation. Ryerson has approximately 200 facilities nationally and internationally. They've had good execution with us and may pursue future sale-leaseback activity, so this is an important relationship for us to continue to cultivate.

Sure. In terms of guidance, we have factored in triggering those two tranches between now and the end of the year. As you said, where we're trading today relative to those trigger points, we're certainly north of that, and the triggers are based on a 40-day VWAP. Those tranches are not open for triggering until September.

The next question comes from Ronald Kamdem of Morgan Stanley.

Just going back to sort of the industrial assets and portfolio. I just would like some general commentary on what you're seeing in the market in terms of cap rate movements. Some of your peers have noted that cap rate compression, maybe it's still compressive and maybe it slowed. Just sort of curious what you guys are seeing out there. Great. And then just the last thing was just on — can you just give us an update on your watch list, if anything has changed there? Maybe how much bad debt is baked into the guidance? I assume it's sort of given how well the portfolio has done during COVID, I assume it's pretty similar to historical levels, but just some commentary there would be helpful.

Sure. Thanks, Ron. From an industrial perspective, we saw some cap-rate compression earlier in the year, and that has persisted to some extent. For us on the industrial side, we're seeing transactions generally in the 5.75% to 6.25% range on a general basis. Our industrial segment is fairly broad, so we have flexibility to think differently than pure-play investment-grade warehouse and distribution. We're also doing transactions in food processing, flex space and manufacturing, which you see reflected in some of the transactions we discussed today. Those are all contributing factors into our pricing. Regarding the watch list and bad debt, it's pretty de minimis and just ordinary course items that we're following from a credit perspective, given the 100% collection of base rents. That's well in hand and well managed at the moment. One change over the last quarter worth highlighting is that we've begun to think more constructively about casual dining opportunities. That sector had been more of a no-fly list during the height of the pandemic, but in the last quarter we've been more open to looking at some opportunities within that space. A few transactions are out there that we're considering, so it's moved off the strict no-fly list from our perspective. That's probably the key change I'd highlight.

This concludes our question-and-answer session. I would like to turn the conference back over to Chris Czarnecki for any closing remarks.

Thank you so much. I just would like to thank all of our shareholders and analysts that joined us today. I appreciate the ability to share some very positive news on what we've done in the second quarter and look forward to concluding the third quarter on a position of strength and giving an update to everybody at the end of October. Enjoy the rest of the summer and stay well. Thank you.

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