Hello and welcome to the Broadstone Net Lease Fourth Quarter 2022 Earnings Conference Call. My name is Bruno, and I will be the operator of today's call. Please note this call is being recorded. I will now turn the call over to Mike Caruso, Senior Vice President of Corporate Finance, Investors Relations at Broadstone.

Thank you, everyone, for joining us today for Broadstone Net Lease's fourth quarter 2022 earnings call. On today's call, you will hear prepared remarks from Chris Czarnecki, John Moragne, and Ryan Albano. Kevin Fennell will also be available for the Q&A portion of this call. Before we begin, I would 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, 2022, for 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. With that, I will turn the call over to Chris Czarnecki.

Thank you, Mike and good morning, everyone. As this will be my last earnings call before stepping down from my role as CEO at the end of the month, I want to open the call by acknowledging and sincerely thanking all of the BNL employees, directors, and capital providers for their support during my leadership tenure. I am incredibly grateful to have had the opportunity to serve BNL's stakeholders for the past 13 plus years, and to have served as CEO since 2017. I am also very pleased with our board's decision to elevate our current Chief Operating Officer, John Moragne, to the role of CEO upon my departure. Having worked closely with John for more than a decade, I am extremely confident that there is nobody better suited to lead BNL into its next chapter. John knows our business inside and out and is beloved by our employees for his service-oriented leadership mentality. He serves all with grace, humility, and intelligence. John is an exceptional leader of the Company already, and he will make a phenomenal Chief Executive. I would also like to congratulate Ryan Albano and Kevin Fennell on their new roles as President and Chief Financial Officer, respectively. Both are highly deserving of these new roles and responsibilities and are excited for what is to come. Finally, I want to welcome Jessica Duran and Laura Felice to the BNL board. Both are exceptional individuals with impressive professional backgrounds that will help support and guide the Company for years to come. Jessica has a deep background in retail and private equity from her current role as CFO with TSG Consumer and brings expertise from her days at Deloitte. Laura's background is also in retailing, having spent 10 years at Clark's and now as CFO at BJs Wholesale Club, along with a deep audit background from her time at PWC. The entire board is very excited to be able to welcome these impressive individuals to an already strong group. And with that, I'll turn the call over to John and the rest of the executive team here today.

Thank you, Chris and good morning to all of you who are joining us today. Before we jump into BNL's fourth quarter and full-year 2022 results, I would like to begin by thanking Chris for his immeasurable contributions to the Company over the past 14 years, particularly during his service as our CEO since 2017. BNL would not be what it is today without Chris' humble leadership and selfless dedication to all of our stakeholders. Chris' vision as CEO and steadfast commitment to our growth were foundational blocks for BNL. He believed in a leadership style that taught us all how to contribute to the greater good, pursue continuous improvement, and create a service-oriented, fulfilling culture. I am immensely grateful to Chris for his mentorship and friendship, and I am confident that Chris' enduring legacy at BNL will be felt through our deep commitment to stewardship, transparency, and value creation. The foundation Chris has laid will support BNL's bright future for many years to come. I'm also grateful to both Chris and our board of directors for their confidence and support in me, and I look to continue delivering exceptional results alongside the same talented team I have worked closely with since joining the Company. Now, turning to our results, I am pleased to report a strong fourth quarter to close out 2022. I am incredibly proud of all that we accomplished during the year and the results we were able to deliver for our shareholders, despite facing a challenging market backdrop. With over $900 million of accretive investments, more than 99.9% rent collected, minimal vacancies, and proactive capital markets execution, we delivered full-year 2022 AFFO of $1.40 per share, representing 6.9% growth over the prior year. Closing out 2022 with a conservative leverage profile of 5.2 times net debt to annualized adjusted EBITDAre and ample liquidity, we are well-positioned to continue selectively pursuing attractive investment opportunities in 2023. For me, 2022 was the perfect distillation of what makes our diversified investment strategy so dynamic. Throughout the year, our broadly diversified buy box provided us with unparalleled flexibility. In Q1, we invested $210 million in 27 properties, with 87% of the ABR coming from restaurants and retail assets. Fast forward to Q4—a significant period of macroeconomic uncertainty, rising interest rates, dislocation between the cost of capital and asset pricing, and the transaction market struggling through price discovery as sellers slowly adjusted their expectations. Responding to this disruption, we shifted our focus to industrial assets, where we saw cap rates expand at a more accelerated pace due to sector-specific supply and demand characteristics. Many private leverage-centric buyers who rely on asset-level financing exited the market due to rising debt costs, allowing us to transact at higher cap rates and achieve better risk-adjusted returns for our shareholders. During 2022, our weighted average acquisition cap rate expanded 100 basis points from Q1 to Q4, representing the largest expansion of any net lease REIT. Having a buy box that spans multiple core property types and taking a disciplined approach to where we allocate capital allowed us to maintain accretive investment spreads without compromising our underwriting standards. During the fourth quarter, we invested approximately $310 million in 17 properties at a weighted average initial cash cap rate of 6.7%. The leases for the new acquisitions include a strong weighted average lease term of approximately 20 years and solid 2% rent escalation, translating into an attractive weighted average cash cap rate of 8%. As discussed during our previous earnings call, fourth quarter acquisitions were largely driven by the single largest sale leaseback transaction in BNL's history, an opportunity directly sourced from an existing relationship to acquire seven mission-critical industrial facilities leased to a food manufacturer with a long-standing and successful operating history. As our new single-largest tenant exposure of 4%, we feel confident that the tenant's focus on defensive end-user products, deep industry relationships, and a strong track record uniquely positions them to perform across all market cycles. In addition, the seven locations are master-leased, well-located, and represent 100% of the Company's production capabilities. While Q4 represents the largest quarter of activity for 2022, we intentionally slowed our acquisition pace during the quarter as it became clear that additional price discovery and expectation resetting needed to occur to properly reflect an appropriate risk-reward trade-off. Solid capital markets execution earlier in the year allowed us to lock in a favorable cost of capital that translated into an accretive investment spread on all acquisitions completed during Q4. Heightened selectivity in the second half of the quarter translated into full-year investment activity just above the low end of our guidance range but has positioned us to continue to prudently grow in 2023. We will continue to employ this more measured approach to external growth in the near term as price discovery persists. As always, we remain focused on only pursuing opportunities where risk and return are appropriately calibrated. As stewards of our shareholder capital, we do not believe in growth for growth's sake; we will take a disciplined, prudent, and selective approach to deploying our capital. With quarter-end, we currently have $5.2 million of investments under control, which we define as having an executed contract or letter of intent. In addition, we currently have $30.6 million in commitments to fund revenue-generating capital expenditures with existing tenants. We continue to see creative ways to partner with our existing tenants in an effort to supplement our routine sourcing efforts. We will continue to creatively recycle capital through strategic dispositions in 2023. During the fourth quarter, we sold three properties for net proceeds of $39.2 million at a weighted average cash cap rate of 5.8%. Subsequent to quarter-end, we executed a simultaneous lease buyout and sale of an office asset for total proceeds of approximately $39.5 million, translating into an all-in exit cap rate of approximately 6%. Opportunistic asset sales provided additional dry powder to be accretively recycled, and helped to mitigate both residual and credit risk in our existing portfolio. With this sale, and on a pro forma basis, we have reduced our office exposure to 5.9% of our ABR from 6.5% at year-end, and we will continue to look for opportunities to reduce our standalone office exposure further in ways that generate strong returns for our shareholders. Regarding the health of our existing portfolio, as of year-end, all but three of our 804 properties were subject to a lease, and our properties were occupied by 221 different commercial tenants across 55 industries. The portfolio's weighted average annual rent escalation remains at 2%, and the weighted average remaining lease term is 10.9 years. With significant ongoing economic uncertainty that may persist for an extended period of time, we have increased the scrutiny of our internal portfolio review process and credit stress testing in light of the current backdrop. Of note, the new operator at Santa Cruz Valley Hospital, now known as Green Valley Medical Center, continues to work through their licensing and accreditation process. They are on track to complete these steps and begin accepting patients later this year. In addition, we are closely monitoring the situation with Carvana and remain confident in the mission-critical nature of the industrial asset we leased to them and its underlying residual value. Finally, we sold three of our Red Lobster properties in 2022 for gains at attractive cap rates, and we'll continue to look for opportunities to decrease our exposure over time. We currently own 19 of the original 25 properties we acquired in 2015 and 2016 at healthy cap rates, all of which are subject to a master lease and are located in strong retail corridors and large population centers. Despite areas of increased attention, our collections continue to pace the net lease industry with more than 99.9% collected for the year. With the exception of 2020, during the COVID pandemic when our collections were still top-tier in the net lease space, this continues a seven-year track record of over 99% rent collections since becoming a public reporting company with some of the lowest tenant concentrations in the net lease sector. Our highly diversified operating model creates a lower risk profile than a simple investment-grade rated percentage would otherwise indicate. Geographic tenant brand and industry diversification provides a defensive hedge against any singular tenant credit event. I'm confident that our thoughtfully constructed portfolio is built to perform across all market environments, including the one we find ourselves in today. With a disciplined, prudent, and selective approach to growth this year, no material debt maturities until 2026, a conservative leverage profile, robust liquidity, and solid portfolio performance, I believe BNL is well-positioned to capitalize on 2023 and build momentum throughout the year for differentiated growth in 2024 and beyond. And with that, I will now turn the call over to Ryan.

Thank you, John, and good morning everyone. I would like to first start with an overview of our current balance sheet positioning and recap some of the capital markets activities we completed during 2022 that have positioned us to operate in a period of economic uncertainty while also pursuing selective growth in 2023. Proactive balance sheet management in capital markets execution throughout 2022 have positioned us for success both in the near and long term. During the year, we judiciously raised capital focused on creating near and intermediate-term financial flexibility via many of the capital markets tools available to us. This approach allowed us to lock in an attractive investment spread on all acquisitions completed during the year, build dry powder that can be accretively deployed during this period of extended pricing discovery. We lengthened our debt maturity profile to provide greater flexibility in light of capital markets volatility, hedged our interest rate exposure in response to aggressive Fed monetary policy, and provided ample cushion to operate during the economic uncertainty that lies ahead. As I outlined on our previous earnings call, we entered into two new unsecured bank term loans in August which allowed us to extend our debt maturity profile and lock in attractive relative cost of debt. We currently have no major debt maturities until 2026, and while we intend to be repeat issuers in the investment-grade bond market in the future, the actions we took during 2022 provide us the flexibility to access the long-term debt markets when conditions normalize. Additionally, during the year, we sold a total of approximately $10.5 million shares of common stock at a weighted average sales price of $21.66 per share for net proceeds of $223 million under our ATM program. While we did not use the ATM during the fourth quarter, the opportunistic use of the program in the first half of the year fueled most of the accretive acquisitions completed during the last two quarters of 2022. The ATM has been and will continue to be a core component of our overall capital market strategy. As of year-end, there was approximately $145 million of capacity remaining on the current program. Finally, as I outlined on our previous earnings call, we completed a forward settled public offering of 13 million shares of common stock at a price of $21.35 per share in August of last year. We settled all outstanding forward equity during Q4 on December 28 for total net proceeds of approximately $273 million. Following settlement, we ended the quarter with leverage of 5.2 times on a net debt to annualized adjusted EBITDAre basis. As of year-end, we had approximately $825 million of liquidity. As John stated, we are focused on selectively deploying this available dry powder on opportunities that are not only accretive but are also appropriately priced on a risk-adjusted basis. Retained earnings coupled with strategic asset sales will continue to bolster available dry powder while also strengthening our balance sheet. Now turning to our financial results. During the quarter, we generated an AFFO of $65.6 million or $0.36 per share, which represents 6% growth over per share results from the same period last year. Q4 AFFO per share results represent approximately 3% growth quarter-over-quarter, largely due to early quarter acquisition closings. Given our heightened selectivity during the second half of Q4, we do not expect to benefit next quarter from the tailwinds we typically experience from late quarter acquisition closings. As for full-year 2022 results, we generated AFFO of $252 million or $1.40 per share, which represents 6.9% growth over our 2021 results. Full-year AFFO per share results landed at the top end of our final guidance range at the midpoint of our initial guidance range. We incurred $7.8 million and $32.1 million of cash G&A expense during Q4 and for the full year respectively. Total cash G&A expenses incurred during 2022 landed just below the midpoint of our guidance range. Strong and consistent operating results during 2022 translated into two dividend increases during the year. Our Board of Directors has maintained a $0.0275 dividend per common share in OP Unit to holders as of March 31, 2023, payable on or before April 14, 2023. This represents an increase of 3.8% over the annualized dividend amount from the first quarter of 2022. The dividend continues to be well-covered with an AFFO payout ratio in the mid-to-high 70% range and represents an attractive dividend yield relative to many of our net lease peers. We will continue to evaluate additional future increases to our dividend with our board on a quarterly basis. Finally, we are introducing initial 2023 guidance today with an AFFO range of $1.40 to $1.42 per share, which represents an implied growth rate of 1.4% at the midpoint. This more modest estimate of year-over-year growth is driven by the strength of our 2022 results and reflects our patience in highly selective growth opportunities in 2023. We hope to revise our guidance upward as we progress further into the year and gain more clarity into both the pace of asset repricing and conditions in the capital markets. For now, we are providing a conservative guidance range that reflects the following key assumptions: acquisition volume between $300 million and $500 million, disposition volume between $100 million and $150 million, 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 acquisitions, dispositions, and capital markets activity that occur throughout the year. And with that, I will turn it over to Chris for closing remarks.

The time at Broadstone has been an incredible experience that far surpassed any expectations I had when joining the Company. I am deeply grateful to have had the opportunity to serve for many years and in many roles. The best has always been being part of the team at BNL and living our one Broadstone mentality with them. The board and I have the utmost confidence in John, Ryan, and the entire management team, who have a long history of working together. They will continue to uphold our track record of success in delivering long-term value for all of our shareholders. I look forward to cheering on all of their successes. Thank you, everyone. Operator, you can now open the line for questions.

Our first question is from Ronald Kamdem from Morgan Stanley.

A couple of quick ones. First, congrats to your management changes. Just curious as you are sort of thinking about taking the helm. Anything that we should expect different or is it just more of the same? Anything organizationally, strategy-wise? Thanks.

From a strategy standpoint, I think the way we are thinking about 2023 as an opportunity to look for differentiation and catalysts for the type of growth and multiple expansion that we believe this portfolio deserves would be the same whether I was in the position I am today or not. There has been no daylight between Chris, Ryan, and myself the entire time we have been working together. The strategy and the way we evaluate the portfolio, opportunity set, and our commitment to providing long-term shareholder value will be the same. Similarly, the sense of stewardship, transparency, and commitment to growth and value for our shareholders that Chris has instilled in us will continue.

Great. And then what about organizationally, in terms of the reporting structures or anything like that?

I mean, the biggest changes are the two that you have on the phone with you right now beyond me. Ryan is shifting into his new role as President and Chief Operating Officer, overseeing our real estate functions. He has leaned into this area more and more over the years and is at the heart of how he thinks. We are excited to have him in that position, bringing his deep experience as our CFO into that role, and providing a broader view of the market, the industry, and how our real estate investments fit into the broader capital markets and investor relations picture. We are also excited to have Kevin step into the CFO role, who brings a deep capital markets expertise from his time at BMO as well as in the last three or four years that he has been with us. Those are the two major reporting changes that you will see. Otherwise, we have an incredible team that I believe is the smartest group in the industry, and they are working incredibly hard to provide value for our shareholders.

Excellent. If I could just switch to the acquisition pipeline. Obviously, the acquisition guide of $400 million. Could you give a little more color on where you are seeing cap rates trending, and what sort of a sweet spot you want to execute at? Clearly, high 6s, maybe low 7s to get to the spreads. I would love to hear a little commentary on the ground?

Yes. We are looking at high 6s, low 7s as we triangulate among various factors, including spread, risk-adjusted return, and matching the opportunity set with our cost of capital. This discipline is evident in the first quarter pipeline numbers you are seeing, now that we have $5 million under control. There are a few things we are evaluating, including one significant off-market opportunity that could shift those numbers, but it is not yet at a point where we feel comfortable including it in the controlled numbers. We are focusing heavily on the opportunity set in the space. Currently, the top of the funnel aligns with what we consider more normalized volumes. 2021 and 2022 saw much heavier volumes than what we have seen on a normalized basis. So in terms of the routine volume we are encountering in the first quarter, we are looking at opportunities annualized at about $20 billion to $25 billion. Therefore, it is a slower start compared to the last couple of years, but there are still plenty of good opportunities out there, particularly in industrial assets, although retail remains active in the market. Cap rates in industrial assets moved further and faster than in other areas we invest in last year. Retail and restaurants are coming along, with the investment-grade space remaining in the high 5s to low 6s. We are not spending much time there right now. Healthcare has not moved as much. We currently feel that the heavier movement in cap rates we observed over the last nine months has plateaued. However, opportunities still exist where we feel price expectations are being reset and price discovery is ongoing. We are monitoring these developments cautiously and carefully. With our $400 million midpoint of guidance on acquisitions, I expect it to be more back-end weighted than last year when we had a smoother distribution of around $200 million every quarter and $300 million in Q4. Nonetheless, we are completely open to reevaluating that guidance as the year progresses.

Our next question is from Ki Bin Kim from Truist.

Congratulations, John, and best wishes, Chris. My first question is regarding the new top tenant, Roskam Baking Company. Can you help us understand the deal and their operation a bit better, particularly concerning the tenant concentration? I noticed they were bought out by a private equity company a year or two ago, and I am trying to understand the credit quality and potential risk for the Company.

Sure, Ki Bin. We are very pleased with this deal. It's a defensive industry from a food processing perspective, which aligns with our strategy. We acquired six assets that are integral to the entire production of the Company. They have a defensive financial position in terms of their ability to pass through costs and protect margins. Their leverage is generally moderate and calibrated well to the private equity starting point, and we feel good about the overall investment.

Since it is the entire production for the Company, do you have a good sense of the rent coverage ratio relative to their EBITDA? What does that look like?

We do not typically look at rent coverage for manufacturing or food processing sites specifically. We focus more on the credit profile of the tenant or the corporation as a whole, similar to how banks underwrite it from a lending perspective. The numbers that flow through the facilities are not all that relevant from a coverage perspective. We spend more time assessing manufacturing capacity, utilization, and the potential for additional production capabilities.

And just a second question on Red Lobster. Any updates from recent conversations with the operator? How is their business doing overall?

It is no secret that Red Lobster is going through difficulties right now. They have been very open about this publicly in their discussion of results for the year, and that is not surprising to us or anyone else. We have had routine conversations with them since the Thai Union deal began and have been in touch since COVID to ensure we are aligned and understand how their operations are performing. We continue to have comfort with our investment in Red Lobster. The sites we have were specifically selected at the time of those deals in 2015 and 2016, ensuring that they are in strong retail corridors. They are in proximity to brands like Olive Garden, Walmart, LongHorn Steakhouse, and Outback, with a solid average five-mile population over 150,000+. We feel confident about the real estate itself, despite Red Lobster's struggles. We are managing our investments methodically and exploring opportunities to reduce our exposure over time.

I apologize for belaboring the point, but are any near-term rent cuts being discussed?

Not for us. It is a topic that gets mentioned, but it is not something we are actively considering at the moment.

Our next question is from Eric Borden from BMO Capital Markets.

I just want to follow up on the guidance and acquisitions. Given the uncertainties and the typical seasonal curve, how should we think about acquisitions throughout the year and the expected movement in cap rates?

We see cap rates plateauing a bit. This is consistent with the type of year-end activity where expectations settle as the year-end approaches. However, we have seen an uptick in repricing discussions, as price expectations are adjusting in relation to the macroeconomic backdrop. I think this pause reflects the slow start to the year; however, the information we are receiving from the market during Q1 indicates that there has been preparation for more activity. We believe our acquisition pipeline will skew more towards the back-end weighted of the year. While we are cautious about cap rates in certain conditions, we are open to adjusting both our strategy and guidance as opportunities arise.

Regarding Ki Bin's last question about rent cuts, could you elaborate on the discussions you've been having, the types of tenants mismanaged, and the potential impact on ABR?

We are not in active discussions or considering rent cuts for any of our tenants right now. I know these topics arise based on certain market conditions, especially given the COVID environment and issues with specific sectors like theater chains. However, we are not actively planning rent cuts. The tenants on our watchlist include Red Lobster and Carvana, but we feel confident in our management and ability to navigate through the situation. We managed to reduce our office exposure from 2.1% to 1.6% of our ABR from the beginning of 2022. We are heading in the right direction while ensuring tenants are meeting their obligations.

Lastly, on the development side. The $30 million pipeline currently in place, is that for the quarter, or is that your assumption for the year? What is the expected commencement period for those projects and their yields?

That $30 million does not represent a full-year projection; it is just a current spot number. We've adopted a proactive approach recently, enabling our property management and asset management teams to collaborate more closely with tenants to identify revenue-generating capital expenditures. This is only a snapshot of the current situation and is comprised of several different projects, each with different timelines and yields. The objective is to partner with tenants to achieve better yields with lower transaction costs compared to standard market options. We see this as an attractive avenue for capital allocation and intend to prioritize this strategy moving forward.

We currently have no further questions. I will now hand back to Chris Czarnecki for final remarks. Please go ahead.

Thank you. Just wanted to again thank all of the folks in the Broadstone universe for all the support you've shown me over the years. I am incredibly grateful. More importantly, I am even more excited about the future of this team. I know they are ready to continue executing on your behalf, and we look forward to seeing you soon at a number of industry events throughout the spring. Thank you, and have a great rest of your week. Bye.

Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.