Business Description
Broadstone Net Lease, Inc. is a diversified triple-net lease REIT. They are 51% industrial with the balance being mostly retail and healthcare. Within these categories, there is quite a bit of variety. Its industrial holdings include logistics warehouses, manufacturing, cold storage, and food processing as the main categories. The medical is a mix of what is known as Med-tail (healthcare in a retail setting) and life science. Retail comes in as your standard triple net real estate investment trust, or REIT, a mix of Dollar General Corporation-type properties and restaurants (casual dining and QSR).
Back in 2019, the company has started shrinking the office acquisitions while pivoting to industrial properties. It was a great strategic move. The management is also very prudent in capital allocation. They ensured there is enough spread between their cost of debt and the cap rate. The company's bottomline growth has been anemic due to increase in interest rate causing an increase in increased expenses, and reduced asset base from dispositions.
SWOT analysis
Strengths
A net-lease portfolio with 51% industrial is an envy for peers in the current macro environment.
The management is very competent: 1) smart portfolio pivoting move to industrial properties; 2) good capital stewardship.
Low debt ratios.
Weaknesses
Do not have a good track record on accretive acquisitions with share issuances. It caused a historical anemic bottomline growth.
The potential of rent escalation from industrial properties is suppressed by long-term (15+ years) lease with only 2% annual escalation.
Opportunities
Renewals with much higher spread on industrial properties when the leases expire.
Acquisitions with dry powder on hands.
Threats
Industrial properties may go out of style if globalization thrives again.
References
2024/01/29 An Unwarranted Discount Gives Broadstone An Accidental High Yield by Dane Bowler
Updates
2024/02/14 Valuation
BNL's prudent approach on the capital is also one of its weakness. It has a historical anemic bottomline growth. I expect BNL can only sustain a 4% annual growth going forward. It belongs to the category of companies with average return on equity and I am going to use a 11% discount rate to valuate it.
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