Hello, everyone. And welcome to the Broadstone Net Lease Fourth Quarter 2023 Earnings Conference Call. My name is Bruno, and I'll be operating your call 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 Relations at Broadstone. Please go ahead.

Thank you, operator. And thank you everyone for joining us today for Broadstone Net Lease’s fourth quarter 2023 earnings call. On today's call, you will hear prepared remarks from CEO, John Moragne; President and COO, Ryan Albano; and CFO, Kevin Fennell. All three will be available for the Q&A portion of this call. As a reminder, the following discussion and answers to your questions contain forward looking statements, which are subject to risk 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, 2023, 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. In conjunction with and included within our earnings release, we provided details on our ongoing efforts to simplify our healthcare portfolio to the disposition of clinically oriented assets. These materials have been furnished with the SEC and may be found on the Investor Relations section of our website at broadstone.com. With that, I'll turn the call over to John.

Thank you, Brent. Good morning, everyone. I'm proud of what our team accomplished throughout 2023 and what was a uniquely challenging year on many fronts. But before jumping into perspectives on our fourth quarter and full year results and market conditions, I would like to take a few minutes to discuss our decision and ongoing efforts to simplify our portfolio composition through the sale of our clinically oriented healthcare assets, specifically clinical, surgical and traditional medical office building properties, commencing with our announcement of an agreement to sell 37 of these assets for $253 million that we anticipate to close in the first quarter. The volatile macroeconomic conditions and suppressed transaction environment we experienced in my first year as CEO provided our team with a great opportunity for internal process and portfolio evaluation. We completed a number of internal objectives and priorities. But perhaps the greatest was the clarity we obtained in our decision to simplify our portfolio, sell our clinical, surgical and traditional medical office building assets, and focus more intently and proactively on the industrial space and our other core investment verticals of retail and restaurant assets. Holding healthcare assets that are not traditionally included in the net lease wrapper has introduced complexity into our business that we needed to address. While these types of assets can be high quality, they generally have shorter lease durations, greater landlord responsibilities, and can present challenges with tenants. Green Valley being the starkest example. At one time, our diversified healthcare portfolio may have served as a positive differentiator, but it has since become a negative distraction as a publicly traded net lease REIT. With this important strategic step, I believe we are positioning Broadstone Net Lease for long term value creation and multiple expansion. After a detailed review, we have identified 75 clinical, surgical and traditional medical office building assets for sale. On a pro forma basis, after completion of these sales, our healthcare exposure would be reduced by approximately 57% from approximately 17.6% of our asset value as of year end to approximately 7.5%. Following the sales, the remaining assets in our healthcare portfolio will primarily consist of consumer-centric medical properties. In addition to the 37 assets expected to close in March, we are in varying stages of negotiations on another 38 assets that we intend to provide an update on with first quarter earnings. I'm highly confident in our decision to sell these assets and focus on redeploying proceeds into industrial, retail and restaurant properties. Our pro forma portfolio statistics remain top class. With prudent redeployment, we expect those key metrics will improve even further. We intend to regularly communicate progress on both the disposition and redeployment efforts as they take place and are excited for what is to come for Broadstone Net Lease in 2024 and the years that follow. Turning to our 2023 results, I'm happy to report a strong fourth quarter to close out the year. We consistently demonstrated our agility and prudence in a highly dynamic macro environment, characterized by significant fluctuations in interest rates and muted transaction activity across our investment sectors. Despite the relative improvement and incremental optimism, we remained mostly on the sidelines, investing $64 million during the fourth quarter of which $16 million was revenue-generating capital expenditure. While we have seen some signs of interest from multiple parties for various uses for certain assets, we are focused on reducing distractions and positioning ourselves for growth. With that, I'll turn the call over to Ryan, who will provide an update on our portfolio.

Thanks, John, and thank you all for joining us today. We continued to execute on selective dispositions during the fourth quarter, selling five properties for gross proceeds of $16.5 million at an average cash capitalization rate of 6.7%, bringing our full year disposition proceeds to $200 million at an attractive weighted average cash capitalization rate of 6%. I'm extremely pleased with the outcome of our full year disposition efforts, which exceeded our initial guidance for the year as we were able to capture opportunistic pricing for what I would consider a risk mitigation exercise. Given the environment, we were able to take advantage of market dislocation to sell assets with outsized credit and/or real estate risk at a weighted average cash capitalization rate of 6% for the year. On the external growth front, we remain highly selective and disciplined during the fourth quarter, which aligns with our consistent messaging throughout 2023. Our investment activity during the quarter consisted entirely of fundings related to UNFI and incremental revenue generating CapEx. Looking forward into 2024, price discovery in the transaction market persists. Interest rate volatility continues to influence the capital allocation decisions of buyers at a more accelerated pace than the price expectations of sellers, leading to a persistent gap in bid-ask spreads and an overall muted level of completed transactions in the broader market. As John highlighted, we remain focused in our efforts to source attractive investments and highly selective in the pursuit of opportunities. Our existing portfolio saw 99.2% rent collections during the fourth quarter and 99.4% occupancy as of December 31, 2023. We are optimistic about the outlook as we remain committed to our strategic focus while also addressing existing tenant challenges where needed. With that, I'll turn the call over to Kevin for commentary on our financial results for the quarter.

Thank you, Ryan. During the quarter, we generated AFFO of $71 million or $0.36 per share, an increase of 1.6% in per share results year-over-year. For the full year, we generated AFFO of $278 million or $1.41 per share, an increase of 1.1% year-over-year and in line with the midpoint of our guidance. Quarterly and full year results were largely driven by same store portfolio growth and incremental asset recycling throughout the year. We incurred $8 million of cash G&A during the quarter and $32.1 million for the full year, a 1% increase year-over-year. Despite no capital markets activity, we ended the quarter in a strong and flexible financial position with a leverage perspective at 5 times net debt. Our mostly fixed-rate debt capital structure keeps us insulated from interest rate volatility, with no material near-term maturities. At our quarterly meeting, our Board of Directors maintained our dividend of $0.285 per common share, which represents an increase of 3.6% compared to the dividend declared in the first quarter of 2023. Given likely timing differences between asset sales and capital redeployment throughout 2024, our payout ratio could increase into the low 90% range in the middle of the year. However, we anticipate returning to our targeted payout ratio of mid to high 70% range in the relative near term as we redeploy the sale proceeds. Details of our 2024 guidance and key assumptions were included in our earnings release. I will now turn the call back over to John before we open up the line for questions.

Thanks, Kevin. As you can hear from our remarks, we are proud of the way we navigated 2023 and are excited for what's to come in 2024. I believe there are significant growth opportunities ahead. We can now open up the line for questions.

And we do have our first question comes from Spenser Allaway from Green Street.

Are you guys able to share any color on the buyer pool for the assets currently under contract? And do you have a sense of whether any of these assets will be repurposed or if they are intended to remain leased to clinically focused tenants?

We had a robust list that we went out to for the buyer pool. It was an actively marketed process, and we were very pleased with the ability of the brokers we worked with to drive this down to the best optimal disposition outcome for us. These are a variety of dedicated healthcare operators in the real estate space, including private and public players. Our understanding is that all these assets are set to continue operating as they are structured, so they're not being repurposed into something different. However, there's a view towards retenanting some of these in the future, which is prevalent in the dedicated healthcare space.

Just turning to your investment guidance for ’24, it suggests you would plan to be a net acquirer this year. In the event that you continue to trade at a discount to NAV, would this still be the case or should we expect dispositions to outpace acquisitions again for this year?

It depends on what we see. We aim to remain cautious. As you've heard, there's a price discovery still ongoing. We are cautiously optimistic that this will clarify itself over the coming quarters to see volumes pick up. As we start seeing improvements in the cost of capital, we may see more buyers and more excitement from sellers. However, we are also keenly focused on looking for off-market opportunities through our network, as well as unique investment structures we can leverage. Within the $97.1 million we have under control is a substantial transaction that excites us. We're not in a rush to have a clear path forward for the year.

I would just add to your earlier question that from a need for capital, we're in the same position as last year and we're lowly leveraged, so there's capacity there as we consider net acquisition.

Some clarifying items on the healthcare portfolio that you intend to sell. 11% of asset value is about $43 million, but there are some medical office buildings in there. Is the NOI different?

The way we're thinking about it is the $43 million. There's certainly some savings built in.

How should we think about cap rates on the stuff to be sold? Is the 7.9% reflective of the first tranche?

I think the 7.9% is reflective. We're focusing on the mid to high 7s for these assets, and we are not looking to fire-sell them. We took a long time to think through this process to offer the best long term shareholder value. We're excited about executing this in ’24 and what it means for 2025 and beyond in terms of growing and driving shareholder value.

If we're all looking at you taking on this divestiture initiative, how do we get comfortable looking out to 2025 and that being a return to growth?

2025 is where we expect growth to occur. We will provide clarity as we approach the later part of the year. We are also excited about the UNFI project, which we expect to bring in further revenues and opportunities going into 2025. Overall, we are focused on long-term shareholder value and believe the performance outcomes will reflect the strategic initiatives we’ve put forward.

The intention is to manage this process to have growth in AFFO in 2025?

Correct.

With the UNFI facility coming on later this year, can you remind us how those economics impact the back half of 2024? Are you seeing other similar opportunities in the market right now?

We expect UNFI to come online and start paying rent in the last quarter of the year, so we’ll pick up one quarter of that this year and a full year next year. We do see future opportunities on a build-to-suit basis, but the extent and timing are to be determined.

We feel really confident right now on redeployment. As we’ve mentioned, we have that $97.1 million under contract, and we’re seeing further opportunities. The timing of redeployment will be key, but we are focused on finding the right opportunities.

Are there any other dispositions planned other than healthcare? How should I think about that?

They'd be pretty minimal. The usual risk mitigation factors are what we're focused on based on our underwriting standpoint. With the healthcare sales, that's where we’re primarily directing our efforts.

Can you replicate something close to the 7.9% cap rates or is there likely to be a little bit of dilution?

It depends on the individual asset, but we’re solidly in the 7s. There are still good opportunities, especially where we can find off-market deals. We will remain disciplined in the process.

So that transaction with UNFI, that’s not a development deal, right? It’s a traditional acquisition?

It involves an existing property that they are working through. We’re aiming for a unique transaction structure to assist developers seeking financial solutions.

As we approach the end of the year, we will evaluate our exposure to rolling swaps based on our financial position and market conditions.

Was it solely focused on the healthcare vertical during this process, or did you also evaluate other sectors like office?

We looked at everything, including the healthcare assets, across the portfolio. However, we decided against pursuing standalone office assets as they are not aligned with our strategic future. We're happy to hold onto master lease office assets as part of our conglomerate, but will not focus on individual offices.

In terms of staffing, will there be changes with the focus on the healthcare portfolio?

We're fairly lean already and haven't had much growth recently. We experienced some attrition last year, but we will continue utilizing our team for the 7.5% remaining in the consumer-centric healthcare space.

We currently have no further questions. So, I’d like to hand the call back to John Moragne for closing remarks.

Thanks, Bruno. Thank you all for joining us today. I hope you can hear the excitement we have about this strategy and what we will be doing in 2024. I’m looking forward to seeing many of you at various conferences and hope you all enjoy the rest of your day. Thank you.

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