Hello, and welcome to Broadstone Net Lease's Fourth Quarter 2024 Earnings Conference Call. My name is Emily, and I'll be your operator 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, everyone, for joining us today for Broadstone Net Lease's Fourth Quarter 2024 Earnings Call. On today's call, you will hear prepared remarks from Chief Executive Officer, John Moragne; President and Chief Operating Officer, Ryan Albano; and Chief Financial Officer, 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 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, 2024, for a more detailed discussion of the risk factors that may cause such differences. Any forward-looking statements provided during this call are only made as of the date of this call. With that, I'll turn the call over to John.

Thank you, Brent, and good afternoon, everyone. I am extremely proud of our 2024 results, achieving $1.43 of AFFO per share at the top end of our guidance range with a portfolio that is more than 99% leased and with more than 99% rent collection and executing on over $400 million in total investments, while substantially completing our clinical health care portfolio simplification strategy. But before I dive further into our 2024 results and plans for 2025, I want to take a moment to thank Shekar Narasimhan and Denise Brooks-Williams for their dedicated service to BNL during their respective tenures on our Board of Directors. As we announced on Tuesday, they will not be standing for re-election to the Board at our annual meeting in May. Shekar has been a member of the Board since the company's inception in October of 2007, and Denise has been a member of the Board since May of 2021. We are incredibly grateful for their years of service to the company and their contributions to our success, particularly in the last several years post IPO as we have worked to reposition BNL and put this company on its current path to generating consistent and attractive long-term shareholder value. As also announced on Tuesday, I am delighted to welcome Rick Imperiale and Joe Saffire to BNL's Board of Directors. Rick's extensive experience managing investments in REITs and alternative asset strategies at Uniplan Investment Counsel as well as his previous service as a director for multiple publicly traded REITs will provide invaluable insights to the Board. Further, the Board will benefit greatly from the insights and experience Joe acquired during his accomplished tenure as the Chief Executive Officer of Life Storage. Rick's and Joe's appointments represent the next step in the evolution of BNL's Board as we continue to implement our differentiated investment strategy built upon our core building blocks of growth. Turning to our 2024 results. We had a solid year all the way around, including generating $1.43 of AFFO per share, representing a 1.4% increase compared to 2023, which I believe is a fantastic achievement considering the substantial portfolio repositioning we undertook last year through our clinical health care portfolio simplification strategy, which could have resulted in negative to neutral AFFO per share growth as is the case with most portfolio repositioning efforts. When considered in that light, 1.4% growth is a home run. As of December 31, we have substantially completed our simplification strategy, reducing our clinical and surgical assets to 3.2% of our ABR from 9.7% at the end of 2023. As a result, we updated our core property types to industrial, retail, including restaurants and medtail assets, and other to realign our portfolio reporting and emphasize our core growth property types. With the success we achieved on this front in 2024, we are now turning our focus towards our long-term growth strategy. I do not intend to emphasize our continued efforts with respect to our remaining clinical assets, some of which could find a more permanent home in our portfolio if we do not believe proper value can be achieved in the dispositions market. Turning to our 2025 plan and strategy for growth. We have ambitious goals for the year and intend to meet or exceed them, positioning BNL for even better growth in 2026 and beyond. As a reminder, our differentiated strategy as an industrial-focused diversified net lease REIT is driven by our four core building blocks. First, solid in-place portfolio performance anchored by 2% weighted average annual rent escalations. Second, revenue-generating CapEx with our existing tenants, which helps our tenants grow their businesses and improve the quality of our portfolio while providing better than market returns. Third and arguably most importantly, a laddered pipeline of committed build-to-suit development projects, constructing high-quality new buildings for creditworthy tenants that provide attractive yields and derisked future AFFO per share growth. And fourth, regular way acquisitions, that is sale leasebacks and lease assumptions, particularly those that are directly sourced and relationship-based that supplement and enhance our built-in growth profile. We are well set up for growth in 2025 and beyond through these differentiated core building blocks, including a strong pipeline of new investments with $103.5 million of acquisitions under control, $5.4 million of commitments to fund revenue-generating CapEx with existing tenants, and $227.3 million of high-quality build-to-suit developments scheduled to reach stabilization during 2025 and 2026, adding approximately $17.6 million of incremental ABR with more than $700 million of build-to-suit development in active discussions that would be scheduled for stabilization in 2026 and 2027. As we saw in 2024, when we reached stabilization on our UNFI build-to-suit development, which we funded at an initial cash yield of 7.2%, that when coupled with a 15-year lease term and 2.5% annual rent escalations results in a straight-line yield of 8.6%. Our build-to-suit development strategy is an incredibly powerful tool for driving long-term accretive derisked growth in ways unique to the net lease space. While the traditional net lease model relies on inorganic growth from a regular way transaction market, it can at times experience unexpected shifts in volatility in volumes, cap rates and asset quality. We are seeking to drive BNL's growth through this differentiated and long-term focused build-to-suit development strategy. With above-average tenant credit quality, brand-new construction, mission-critical facilities and real estate, and attractive economics with straight-line yields in the mid- to high 8% range or better, there's a lot to love here. Added to that, with our industrial focus, we have consistent access to build-to-suit transactions of considerable size that move the needle for our growth based on our attractive denominator. And with the valuation increase we can capture of 75 to 100 basis points or more once our developments reach stabilization, we are also generating a consistent pool of assets that we can use to fund our growth plans without needing to rely on the equity capital markets. At a time when our share price is not where we believe it should be, unless there is a material and significant rerating of our multiple, we have no plans to raise any equity in 2025 or for the foreseeable future, and we'll manage our equity capital needs and cost of capital through accretive dispositions as needed. We have large goals for our build-to-suit development strategy and are looking forward to making some exciting announcements in the next few months. Our goal for this year is to add at least $500 million in additional build-to-suit developments to our committed schedule for projects that would stabilize and begin paying rent in 2026 and 2027, further strengthening our laddered build-to-suit approach. For 2025, we are initiating our AFFO guidance range at $1.45 to $1.49 per share or approximately 3% growth at the midpoint. As the year progresses, we expect to revisit our guidance range as well as the underlying assumptions, which Kevin will review with you in a moment. Later this year, we also hope to be able to provide you with a preview of our forecasted run rate growth for 2026 and 2027 based on the contributions we expect to receive from our core building blocks and our execution in 2025. During 2024, we made decisions that we believe are in the best interest of BNL and its investors for the long term and are confident that those decisions will lead to attractive and sustainable AFFO per share growth in BNL's future. We established a differentiated strategy through our high-quality portfolio of diversified properties with strong operating metrics, pruned tenant credit risk and lease rollover risk through targeted dispositions, and maintained a fortified investment-grade balance sheet with low pro forma leverage at 4.9x and ample liquidity to capitalize on additional investment opportunities. Most importantly, we put a stake in the ground as to who we are as a company and what our differentiated growth strategy will be for the future. We are proud of our accomplishments in 2024 and excited for what's to come in 2025. With that, I'll turn the call over to Ryan, who will provide additional updates on our build-to-suit and acquisitions pipeline as well as portfolio matters.

Thanks, John, and thank you all for joining us today. As John mentioned, we have continued laying the necessary groundwork for sustained success in our laddered and long-term build-to-suit strategy. We currently have $227.3 million in build-to-suit developments with attractive initial cash yields in the mid- to high 7% range and straight-line yields in the mid-8% to mid-9% range. These build-to-suit projects are all for identified tenants with structures in place to mitigate the traditional development risk associated with construction delays and cost overruns. First of all, we are leveraging existing and direct relationships to build this pipeline and further deepening relationships that should provide ample opportunity for more projects in the near term. Our development partners need someone that brings surety of execution, deep experience and expertise, and a willingness to be creative and help them secure projects and grow their businesses. They have found that in BNL. On top of our announced and committed pipeline of build-to-suit developments, we are hard at work on more than $700 million of additional projects in active discussions that we hope to provide updates on in the coming months. We are also in the process of expanding our pool of developer relationships and expect to have some exciting news to share on that front in the near future. These transactions take more work and have longer lead times than traditional regular way acquisitions. However, we believe the corresponding benefits of higher returns, stronger tenant credit, higher quality buildings, and better real estate fundamentals along with the ability to derisk our long-term growth profile more than outweigh the additional effort. These projects will drive attractive derisked future AFFO per share growth and reduce our reliance on the regular way transaction market where we continue to be cautious as we have consistently observed a disconnect between pricing expectations and the quality of opportunities. Turning to our investment activity for 2024. We invested $404.8 million, including $234.3 million in new property acquisitions, $115.3 million in build-to-suit developments, $52.2 million in transitional capital, and $3 million in revenue-generating CapEx. The completed acquisitions and revenue-generating CapEx had a weighted average initial cash cap rate of 7.3%, a weighted average lease term of 10.8 years, a weighted average annual rent increase of 2.4%, and a weighted average straight-line yield of 8.1%. Our total investments were weighted approximately 70% to industrial properties and 30% to retail. Subsequent to year-end, we invested $22.3 million in build-to-suit developments, including obtaining control of the land and initial funding for one previously announced project. We have a total of $200.7 million remaining to be funded for our committed build-to-suit development projects as set forth in our earnings release and supplemental. We also have an additional $103.5 million of acquisitions under control and $5.4 million of commitments to fund revenue-generating CapEx with existing tenants. During 2024, we sold 58 properties for gross proceeds of $364 million at a weighted average cash cap rate of 7.8% on tenanted properties, substantially completing our clinical health care portfolio simplification strategy. We expect our dispositions for 2025 to be more muted, returning to historical averages in the $50 million to $100 million range except to the extent we choose to opportunistically sell additional assets to fund our growth, as John mentioned earlier. Now shifting to our in-place portfolio. For 2024, we executed on seven lease rollovers, addressing near-term lease expirations for 1.6% of our ABR, and we were able to achieve a 112% weighted average recapture rate and an average new lease term of over nine years. With only 1.2% of our ABR set to roll in 2025 and 3% in 2026, we have minimal near-term rollover concerns and are actively engaged with our tenants on those leases. 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 duration of the higher interest rate environment lengthens, we see further strain being placed on consumer-centric industries and entities who lack flexible capital structures. We remain vigilant in our tenant monitoring efforts and maintain great confidence in our portfolio due to its diversified construction, which limits the impact of any potential individual credit events and our proven ability to manage through any such situation that may arise. Our watch list has remained fairly consistent in consumer-centric tenants as well as some of our remaining clinical-oriented health care properties, including our tenant, Stanislaus Surgical remaining in focus. Broadly speaking, the home furnishing space continues to be in focus for us as well, specifically including our tenant at home, which we have highlighted for multiple quarters and represents approximately 1% of ABR. We are also navigating the recently announced Zips Car Wash bankruptcy. We own ten of their car wash sites under three separate master leases, which account for 62 basis points of our full-year ABR. We received rent for January, expect to receive rent throughout the bankruptcy process, and are currently negotiating terms of our sites. Although the initial rejection list includes seven of our sites, we expect the final result to be more favorable due to the strength of our master lease structure. For any sites that may eventually be rejected, we are in active discussions with multiple other interested parties for potential sales or new leases. We are also acutely focused on managing downside risk associated with our vacant properties, which come with higher property operating expenses than our lease portfolio. We are working towards swift resolutions, whether sale or lease, for these assets to reduce base carrying costs. With that, I'll turn the call over to Kevin to provide an update on our financial results as well as further details on our initial 2025 guidance.

Thank you, Ryan. During the quarter, we generated adjusted funds from operations of $70.5 million or $0.36 per share, a flat per share result year-over-year. For the year, we generated $282 million or $1.43 per share, a result that benefited from timely transaction activity early in the year with respect to redeploying the first portion of our health care disposition proceeds. Additional positive contributions for the year came from lower G&A and interest expenses, with core G&A totaling $7.5 million for the quarter and $29.3 million for the year, reflecting our continued focus on controllable expenses as well as savings from personnel departures and reduced BNL insurance premiums. Bad debt is 67 basis points and just under $3 million of carrying costs associated with vacant properties partially offset some of those gains. With respect to the balance sheet, we maintained our strong and flexible financial position with pro forma leverage of 4.9x net debt and more than $900 million available on our revolving credit facility, providing us ample capacity as we evaluate incremental investment opportunities. Regarding our dividend, our Board of Directors maintained our $0.29 dividend per common share in Operator unit payable to holders of record as of March 31, 2025, on or before April 15, 2025. Our dividend remains well covered and continues to represent an attractive dividend yield relative to many of our peers. Finally, details of our 2025 guidance and key assumptions were included in our earnings release last night and include: Adjusted funds from operations of $1.45 to $1.49 per diluted share, investment volume between $400 million and $600 million, disposition volume between $50 million and $100 million, and finally, core G&A between $30 million and $31 million. Given the front-end incidence of tenant events with Zips and Stanislaus, we are including 125 basis points of bad debt within our 2025 guidance, and we'll revisit this assumption throughout the year. It's also worth noting that our per share results for the year are particularly sensitive to the timing, amount and mix of investment and disposition activity as well as capital markets activities that may occur during the year. Please reference last night's earnings release for additional details. And with that, we will now open the call up for questions.

The first question today comes from Anthony Paolone with JPMorgan.

Great. I guess, first question, I just want to clarify and make sure I understand. Your $400 million to $600 million of investment guidance, is that money out the door? Or is that deals that actually contribute net rents?

Yes, that's money out the door. So it would be a mix of both regular way deals that will contribute net rent today as well as investments that we're making in our build-to-suit program.

How much of that should we consider as actually contributing to earnings during the year, especially since it seems that a significant portion is related to a growing build-to-suit pipeline where we won’t see the income until later years?

Yes. So it will be a balance and wanting to see what happens with the deal flow that we got in front of us. But this is always an 'and' equation for us, not an 'or', as evidenced by the $103.5 million of regular way deals that we have under control that should close by the end of the first quarter or soon after the end of the first quarter. So we're going to have a decent amount deployed into current earning assets fairly quickly into the year, and there's a handful of other things that we're currently contemplating in underwriting. So it will be a mix, but we'll do as much as we can to make sure you all are able to model out what's going to be rent paying this year versus stuff that will come online later in the year.

Okay. Can you remind me, for example, regarding the build-to-suits in the supplemental, the $200 million or so, do you generate any earnings while you are extending the capital during this process? Or is that simply a cost you have to bear?

Yes, there's a capitalized interest component to that. It's added to the basis. So it's part of the equation that we use for determining rent at the back end of this and then we get the benefit over time, and we capitalize that interest. Basically, if there's a revolver balance, we use the revolver rate. And then to the extent it exceeds the revolver balance, we use our weighted average cost of debt.

Okay. But there's no current payment from the future tenant to help fund the finance?

Correct.

Okay. And then just last question on the credit side, you mentioned 125 basis points in guidance for the year. If I look at Page 9 of the supplemental and just look at sort of the uncollectible, that kind of averaged for 2024 about 100, 125 basis points as well. So am I looking at that right that there's not a whole lot of difference there in terms of how you're thinking about '25 versus '24? And is that kind of the right way to think about what we should take off of your 2% to think about long-term organic growth?

Tony, it's Kevin. I think if you're looking at '24, the guide last year was 75 basis points for the year, but was excluding what we were expecting in the form of Green Valley. So that total number for '24 includes that hospital for last year. So 125 this year will be an incremental 50 versus last year.

Your next question comes from Eric Borden with BMO.

I would like to revisit the developments and ask about the funding situation. You currently have around $200 million in funding obligations for this year and expect to have between $50 million and $100 million from asset sales. Since you do not plan to issue equity, can we assume that the remaining amount will be placed on the revolver?

Yes. So the $227 million we've got, there's a bunch of that's going to get funded into 2026 as well. So it's not all for this year, and we'll schedule that out, but you can see it if you look at our schedule in terms of when the stabilization dates are as well as in terms of overall project commitments. So we've got a handful of those that will be 2026 stabilization so they'll be continued to fund throughout the first half of 2026. But generally speaking, our goal will be funding these things on the revolver and then with incremental disposition proceeds.

Okay. That's helpful. And same goes for the incremental $500 million that you're currently evaluating?

Yes. So our goal for the year is to add an additional $500 million of new build-to-suit commitments. We've got active discussions going on about $700 million or so right now. So we feel pretty good about what we're looking at from a ladder and build-to-suit pipeline going into '26 into '27. We'll continue to fund that and control it in our own way. So whether it's revolver balance, retained earnings or accretive dispositions, that's the focus. We're not intending on raising any equity capital this year or for the foreseeable future until that stock price changes.

Okay. That's helpful. And then just how are you thinking about leverage, just given the lag effect between the timing of the NOI coming online and the use of revolver? How high are you willing to let leverage creep today in order to get that benefit down the road?

Yes. I mean we introduced the pro forma leverage component last year after getting the rating agencies comfortable with it. The future cash flows associated with our build-to-suit programs are ones that are very much creditworthy, and so it's something that we can take into account and how we think about long-term leverage. We'll ladder this out and look at where it takes us on an absolute basis as well as pro forma. There's also the consideration there in terms of where the revolver utilization lands that we have to keep in mind. You've heard Kevin say this for a long time. We've got religion on staying inside 6x on a sustained basis. On an absolute basis, we could exceed that for a period of time with a clear view to coming back inside of it. Our efficient spot is really at 5.5x. But we'll play around with that. We've got some chunkier things that we're evaluating that would come online in '26 and '27, that would provide some substantial relief from that standpoint. But you have to balance out the longer-term view with the revolver utilization, and then we'll make up the difference with some accretive dispositions.

Okay. That's helpful. And just one last one for me. Just on the acquisitions, the $100 million of assets under control. Just curious what has changed over the last 90 days since we last spoke, just given that, if I remember correctly, 3Q, you didn't like the product that was on the market or just didn't fit what BNL was looking for. So I'm just curious to what has changed over the last 90 days? And what's currently, in terms of asset mix, under control today?

Yes. So still heavily weighted towards industrial. As Ryan said, it's about 70-30, and that's been consistent for us for at least 5 or 6 years at this point. So that's probably a pretty good barometer for what we're going to be doing going forward. Some of this stuff, there's actually one deal, a fairly chunky deal, it's a part of it that we were looking at over the summer, and it was just a spot where we weren't able to get to the right gap rate in terms of where we thought it should price versus where the seller was, and we eventually got to the right spot. It just took a long time to get there. So our view in terms of taking a fairly disciplined, prudent approach to how we're evaluating this market because we still continue to be very cautious, as you heard Ryan say during his prepared remarks, hasn't changed. We are excited to have $103.5 million to kick off the year. We're looking for more opportunities, but it's incredibly competitive out there right now. So you're fighting for every deal that you can get.

The next question comes from Upal Rana with KeyBanc Capital Markets.

I just want to return to the Zips Car Wash bankruptcy. Could you give us a sense of what you expect to occur here as it relates to timing or possible outcomes there?

Yes. So Ryan talked about this during his remarks. We've got ten assets, about 62 basis points tied up in them. These are assets that we bought back in like 2017, 2018. So we've had them for a long time. The initial list rejected seven of them, but kind of completely ignored our master lease structure. So we took a pretty strong stance going back into the bankruptcy that, that was not something we were going to stand for. So we're having active discussions with them right now. It's hard to know exactly where it will go just because bankruptcies always are a little bit of a wildcard, but we feel pretty confident that we're going to end up in a decent position on the other side of this. Our understanding, and don't hold me to this, is that they're looking to exit bankruptcy as soon as March or April here, depending on how the negotiations go and what they're trying to accomplish. But bankruptcies always can go sideways at some point. So we're working hard to make sure that we preserve as much value as possible in our sites, and we'll be sure to keep everyone updated.

Okay. Great. And then is there a possibility that you'd be interested in selling those assets or releasing?

Yes. So one of the great things about bankruptcies hitting the news is you get a whole lot of inbound. We've had a lot of folks reach out to us that are interested in buying these assets, buying some of the assets, leasing these assets. So in terms of the opportunity set that's in front of us, that's part of the reason why we have as much confidence as we do. And if we can find a good resolution to this with Zips themselves and come out the other side feeling good about what that resolution is, then that's great. But if not, we've got a pretty good backstop in our ability to sell these assets or to release to somebody else if that's the way that we need to go.

Okay. Great. That was helpful. Given the lighter investment activity in the fourth quarter, did that lead to the company finishing at the low end of the 2024 investment guidance? Was that related to timing, or was it due to something else?

It's just more of the competitive environment. We have, over the last couple of years, sort of post the pie-eating contest of '21 and '22, have really made sure to take a disciplined approach to this, and we're not just going out and doing deals for the sake of doing deals. And if that means that you put up a bogey for the fourth quarter of the year, then that's okay. We're not afraid of doing that. We want to make sure that we're making the right decisions for the right reasons when we're investing capital. As I mentioned, some of it was timing. A deal that we looked at the summer didn't come together, but it came together now. So it's under control, and we're looking forward to closing it.

The next question comes from Jay Kornreich with Wedbush Securities.

Going back to the $700 million of build-to-suit developments and conversation, which seems like you're experiencing enhanced interest from prospective tenants to work with you despite some uncertainty with interest rates and just the economy. I'm just curious if you can comment further, is what's driving up that interest from these potential build-to-suit development tenants? And if you're experiencing any changes to cap rates or lease terms in the negotiation versus last year?

Yes. So I'll take the returns first. We're continuing to see sort of upfront cap rates in that mid-7 cap zone, but on these longer, larger industrial build-to-suits. We're talking 12-, 15-, 20-year lease terms, 2.5% to 3.5% rent bump. So our straight-line yields on these are solidly mid-8s to high 8s, sometimes low 9s. So really, really attractive places for us to be allocating capital. In terms of the interest here, it's part of an overall. You would hope this is a renaissance of American manufacturing where you've got people nearshoring, onshoring. The specialized builds that we're doing, whether it's they need it in an absolutely mission-critical location or they need to consolidate multiple sites that are causing inefficiencies in their distribution networks or they have to build out something that's going to be a part of a manufacturing supply line for them. Folks are looking at this as a long-term investment. JLL actually came out with a report this week that talked about how the build-to-suit pipeline, as a portion of the overall development pipeline, has returned to pre-pandemic levels, where it now is a full 30% of development that's occurring. So we're very excited to continue to participate in it. You heard Ryan. We are also expanding our relationships. And so that's part of the reason why we're starting to see as many additional deals as we are. It's not just individual deals with individual developers. There are a handful of things that we're seeing right now where on individual deals, multiple developers are presenting it to us. So our name is getting out there. We're finding a lot of people to work with, and we're really excited to see this start laddering out into the future years.

I appreciate that. And then just one more. Within the $75 million at the midpoint of disposition to outline the guidance, how much of that is part of the final tranche of the health care dispositions versus just additional pruning of the overall portfolio?

It's a little above. There's absolutely some additional clinical assets that are a part of what we're expecting to be in that guidance range. And there's also some general pruning that we'll do. The wild card there in terms of what might change from a guidance standpoint was if we opportunistically choose to sell an asset on an accretive basis to fund growth.

The next question comes from Michael Gorman with BTIG.

Just a couple of quick ones, actually. On the Zips Car Wash, are you able to share what the coverage is under the master lease for all 10 sites?

Yes. It was close to 2, I want to say, right before bankruptcy.

Okay. Great. And then John, maybe on the build-to-suit pipeline. As you think about the opportunity set there and the competitive nature there, I understand you're getting more inbound, which is great. Are you seeing any change on the competitive side here? We've been hearing in other sectors that financing for development is still really tough. So I'm curious if you're experiencing a different close rate as you think about underwriting these projects? Or how much more competition you're seeing on the build-to-suit side of things?

Yes. So the conversion time is long on these. Getting a site fully entitled and ready to go, getting the design build stuff done, working through the economics, and then working through sometimes the dog and pony show in terms of being selected, either individually for funding or as a partner to the developer and the developer being selected. It's a long process. The competition is difficult at times on certain assets. It's not as difficult as we would say if we were to compare the build-to-suit process with say, mid-market down the middle of the fairway industrial deal right now. And in both cases, what we're seeing is a big increase in the amount of the private buyers that are participating in it. I think it's a little bit more frothy in terms of the competition on regular way deals where we're seeing 15 to 20 or more offers and people participating in late round bids on some of these deals. So it's getting incredibly competitive on regular way deals, less so on the build-to-suit, but certainly more than it was in the past. Now the nice thing is because of our industrial focus, the size of the build-to-suits that we're looking at is so large, there's only a handful or more of folks out there that are going to be looking at something like that. For others that are doing build-to-suits in the retail restaurant space where it's in that $2 million to $5 million range, they're not looking at biting off $100 million or more, and we're able to do that on a pretty consistent basis. So the pool of folks there is a little bit smaller, but it's still competitive.

That's helpful. And is there any kind of rule of thumb or general sense for how much maybe kind of plant and equipment that the tenants are putting into these facilities on top of the investment that you're making? I'm just trying to get a sense for kind of the tenant's financial commitment once these facilities are open and operating.

Yes. It depends on the facility. So it's a little hard one to answer. If you think about just a regular box for a distribution logistics facility, where there is going to be much in there besides racking, relative to the cost of the build, it may be relatively immaterial. But if you think about something like our UNFI build in Sarasota, they were putting in tens of millions of dollars of additional investments. So it's a significant amount of investment from the tenant in addition to what we're doing.

Okay. Great. And then just last one for me. And I'm sorry if I missed this. When you think about '25 or even going forward, any additional appetite for transitional capital here, just given some of the disjointed nature of the transaction markets right now and the opportunity set there and also appetite from your side to put more money to work in that type of investment?

Yes. And we're certainly always open to it. I think the place where we would be most open to it is on a direct relationship basis where we're helping someone that we have an existing relationship with, grow their business and solve the problem. On a new basis, if we've got alternative areas to allocate capital, whether it's regular way deals or in build-to-suits that don't come with the complexity that transitional capital comes from, we likely would allocate it somewhere else. But if one of our tried and true long-term partners came to us and said, 'Hey, we need to help here.' We'll be more than willing to entertain it.

The next question comes from Michael Goldsmith with UBS.

Clearly, the portfolio has been evolving. So historical bad debt expectations may not be fully comparable. So is the 125 basis points of reserve this year indicative of what you should expect in a normal year going forward? Or is it elevated based on the visibility into those incremental pockets of credit risk that you talked about earlier in the conference?

Yes, I'd say our hope certainly is that it's not indicative of what it's going to be in the future. We have a lot of faith in this portfolio. We've spent a huge amount of time and effort building it up, and we feel good about it. But I think you answered it yourself with, there's a couple of incremental pockets of credit risk that we know about early in the year. Obviously, there's a big difference if something hits late in the year; it doesn't have that huge of an impact. We saw that last year, where there were definitely some things that we knew were going to come, but they didn't hit until the late third, fourth quarter. And so the impact to 2024 was fairly minimized. But with Zips and a couple of other things, including Stanislaus being on the front end of the year, it certainly hits a little bit harder because of the length and duration of it. So that's really the main driver behind the 125 this year. We'll have to evaluate where we are at the end of the year, but our hope is that, that would be something less next year, but wait and see.

Yes. As a follow-up, retail has seen a significant increase following the reclassification of different property types. I'm curious about the future focus within retail. Are there specific sectors that are particularly appealing for expansion, and are there any that are becoming less relevant that you plan to use to fund further investments? I'm trying to get a better understanding of what this might look like over time.

Yes. I think the main driver behind the sort of reclassification of our asset types into primarily industrial and then retail, with retail including restaurants and medtail assets, is just to give a very clear picture of folks of who we are and where we're headed. We are an industrial-focused diversified net lease REIT. You should expect to see us probably in that 70-30 range in terms of industrial and retail. That's what we've been doing for the last 5 or 6 years. The particular sort of subcategories or asset types will change over time. If you look at industrial, an area that we spend a lot of time on and a lot of investment in the last few years has been food production-related distribution. We've got a bunch of that in the hopper right now as well. So that's been something that we've been leaning into a lot more heavily. But I think that 70-30 break is where you should expect to see us fairly consistently into the future.

The next question comes from Spenser Allaway with Green Street.

As it relates to the disposition guidance, can you just remind us what's in that bucket currently and how you would describe the composition and depth of the buyer pool just based on what you're looking to divest today?

Yes. Within our guidance, there are still some lingering components related to clinical health care. We are also considering a few other areas. We are open to reducing our office portfolio as much as possible. Additionally, there may be some opportunities we pursue over the year that could be beneficial. The interest from buyers varies by asset type. Larger properties require substantial capital, making them unsuitable for the 1031 market. In contrast, smaller assets might fit the 1031 market but still need to recover from previous levels. The buyer pool can range from small high-net-worth individuals to large institutions. Currently, we are not looking to sell properties as a portfolio, except for related buildings with the same tenant. Therefore, I do not foresee any significant portfolio sales like those from the previous year.

Okay. And then as it relates to retenanting vacant spaces, can you just remind us on your stance on providing CapEx or TIs as it relates to that retenanting efforts? Or are you inclined to provide that? Or do you tend to avoid that?

We're open to it. It totally depends on the economics and what we're talking about in terms of lease length, what's the return, the tenant, you name it. It's not something that we avoid. We're real estate managers at heart. This is what we do. So part of that is managing real estate and finding the right outcome for each of our individual assets. And sometimes that means selling it. Sometimes it means putting a little extra money to get somebody in the door. And sometimes you get lucky; you don't have to do either of those things and you can get a new tenant that comes right in. So we'll take each one in turn. And if it means that we've got to roll our sleeves and get in there a little bit, we're okay doing that.

Okay. That makes sense. And then one more just on tenant health, if I can. So I appreciate the color you provided on the watch list and the bad debt expectations for '25. But probably, can you just talk about rent coverage in general? So any notable changes across industries or segments of the portfolio? And can you just remind us what the portfolio average is?

So we only disclose it related to our restaurants. It's been pretty consistent quarter-over-quarter. We're still sitting at 3.3x on a rent coverage basis. We evaluate it on other asset types within the portfolio, and it's been pretty consistent. The stuff that we've been concerned with watch list-wise, some of the handful of things in home furnishing, some of the stuff in clinical, the individual ones that we've mentioned by name hasn't really changed. It's been pretty consistent quarter-over-quarter for a little bit here.

The next question comes from Caitlin Burrows with Goldman Sachs.

Maybe just starting on the build-to-suit side. I was wondering if you could talk a little bit about the sourcing. It seems like in the past, they had kind of been one-off deals that came together for kind of one reason or another, which works. I was wondering if there's any change to how you're sourcing deals today and how that's evolving.

Yes. So a couple of things there. One, as we've done more of these, our name has gotten out there. So there's a little bit of organic marketing that's happening that we're getting the benefit of. Two, we're getting some referrals. Developers that we've worked with are very happy to refer us on to their friends when they've got capital needs. And the third is we've expanded our team. So we are working with experienced professionals who have deep relationships throughout the development community from their years operating in this space. All three of those things together have put us in a great spot to start seeing a lot more of the active pipeline that's out there.

Got it. And then I think you mentioned that there could be an announcement about development. I forget exactly how you phrased it. So I was wondering if that might be like a partnership or something else that ends up kind of evolving that sourcing further? Or any comments on that?

Yes, it's both new development opportunities and new relationships, both of which are exciting for us. We've got a policy in place that makes sure folks are aware of what's happening in this pipeline, particularly because of the long nature of it and the way that we're laddering it, getting you all an updated schedule. So we have a policy where as soon as we close on the land and execute documents, we issue a press release. So we're hopeful that if a couple of these things go our way, the way that we expect them to in the next couple of months, we'll have some new press releases out there in between earnings.

We have no further questions so I'll hand the call back to the management team for any closing comments.

Great. Well, thank you very much. We appreciate the dialogue today, and we're getting into the busy conference season. So we look forward to seeing many of you in person in the coming months. Have a good rest of your day. Thanks all.

Thank you, everyone, for joining us today. This concludes our call, and you may now disconnect your lines.