Reit Magazine - March/April 2021 - 58

Broadstone Net Lease, Inc.

health care, restaurant, office,
and retail sectors. Under the triple-net lease structure, tenants
pay all property-level expenses,
including taxes, insurance,
utilities, and maintenance.
Properties leased to health
care and industrial firms
account for about 65% of
Broadstone's portfolio, as
measured by their contribution
to its annualized base rent. Its
health care properties house
clinical and surgical centers, as
well as specialty and veterinary
facilities. Because of their essential nature, such tenants have
tended to fare better during the
pandemic than movie theaters,
fitness centers, and certain
other types of tenants that are
common to the net lease space.

Broadstone's tenants include health
care facilities, like this one in North
Little Rock, Arkansas.

NATIONAL FOOTPRINT
Geographic diversification has
also served Broadstone well.
While restaurants have been
hard hit by the pandemic, some
of Broadstone's largest restaurant tenants have a national
footprint, which has helped to
mitigate the impact of restrictions on dine-in activity in parts
of the country.
Many of the same tenants have master leases with
Broadstone that span multiple
states and metro areas. Red
Lobster is Broadstone's largest
tenant, as measured by its
contribution to annualized base
rent. Jack's Family Restaurants,
Outback Steakhouse, and
Krispy Kreme are also among
its top-20 tenants.
The company's footprint
in Texas is perhaps the best
illustration of its deep level
of diversification. The state is
Broadstone's largest market
and its holdings there generate approximately 10% of the
company's annualized base rent.
Within Texas, the company has
properties in 20 different metro
areas and 29 tenants spanning
16 industries.

58 |

reit

Outback Steakhouse is among Broadstone's top-20 tenants.

" It just gets more and
more granular as you go, "
says Czarnecki, adding that
Broadstone was among the
best-performing net lease REITs
in 2020, as measured by rent
collection, largely because its
holdings aren't concentrated in
any one market or industry by
tenant type.
During the second quarter
of last year-when many states
began to lift stringent lockdown measures-Broadstone
collected about 95.5% of its
rents, according to the company. Its rent collection rate rose
to 98% in the third quarter and
to 99% in the fourth quarter.
" You had this massive credit
event, in the form of COVID,
that stress-tested portfolios,
and Broadstone's portfolio performed particularly well, " says
J.P. Morgan analyst Anthony
Paolone.

In April and May 2020,
rent collections for net lease
REITs averaged in the 70%
range, according to J.P. Morgan
Research. Broadstone, Paolone
says, not only performed well
relative to its peer group in
terms of rent collection but did
so despite the fact that it had
a comparatively low level of
investment-grade rated tenants.
At the time of Broadstone's
initial public offering (IPO)
in mid-September 2020, the
percentage of investment-grade
rated tenants in its portfolio
was about half the average for
its peer group, 16% versus 36%,
according to J.P. Morgan.  
" You'd think that the lower
the credit quality of your tenancy, the greater the likelihood
that you'd have rent collection
challenges due to COVID.
But that wasn't the case for
Broadstone, " Paolone says.

" That reflects well on management's ability to underwrite
tenants and assets, " he adds.

PRE-IPO " PUBLIC
COMPANY MENTALITY "
Not only has Broadstone come
through the pandemic relatively
unscathed, but its transition
from private to public company
hasn't been a huge leap, according to Czarnecki. That's because
Broadstone has long operated
like a public company on many
fronts-from transparency to
managing its balance sheet. Its
modus operandi hasn't gone
unnoticed.
" They've had a fiduciary
mindset in terms of being
transparent and running things
with an appropriate level of risk
controls and disclosure: The
things that we think are pretty
important in the public markets, " Paolone says.



Reit Magazine - March/April 2021

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