Hello, and welcome to Broadstone Net Lease's Second Quarter 2021 Earnings Conference Call. My name is Andrew, and I will be your operator today. Please note that today's call is being recorded. [Operator Instructions] I will now turn the call over to Mike Caruso, Senior Vice President of Corporate Finance and Investor Relations at Broadstone. Please go ahead.

Thank you, operator, and thank you, everyone, for joining us today for Broadstone's Second Quarter 2021 Earnings Call. On today's call, you will hear from our Chief Executive Officer, Chris Czarnecki; our Chief Financial Officer, Ryan Albano; and John Moragne, Chief Operating Officer, who will participate in Q&A. Before we begin, I'd 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, 2020, 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. I will now turn the call over to our Chief Executive Officer, Chris Czarnecki.

Thank you, Mike, and welcome to everyone joining our Q2 2021 earnings call. I hope that our listeners are having a safe, healthy and enjoyable summer. It's hard to believe we are quickly approaching the 1-year anniversary of our initial public offering. We could not be prouder of all that the BNL team has accomplished since entering the public markets and where we are currently positioned as we move toward the second half of the year. During Q2, we continued to execute on our growth objectives while simultaneously strengthening our balance sheet to position BNL for a strong second half of the year. Our defensive growth profile remains exceptionally attractive. The predictability and consistency of our portfolio's operating profile as evidenced by the collection of 100% of base rents due during the quarter, affords us the ability to focus intently on external growth. I'm pleased to see our stock continue to season in the public market, which further enhances liquidity and access to capital and allows us to continue to grow earnings through accretive acquisitions. During the quarter, we successfully executed on our first follow-on offering, which has positioned the balance sheet to continue to support growth in the second half of the year. Ryan will provide additional detail on capital raise activity in a few moments, but I would first like to provide an update on Q2 investment activity. During the quarter, we closed seven transactions comprising 34 properties for a total investment of $194 million at a weighted average cash cap rate of 6.2%. The leases include 1.4% weighted average rent escalations and a 13.2-year weighted average lease term. Acquisitions completed during the quarter were more heavily weighted towards industrial at 57% with a smaller concentration of health care and retail properties at 24% and 19%, respectively. When…

Thanks, Chris, and thank you all for joining us today. I'm excited to share additional detail on our recent capital raise activity and corresponding balance sheet positioning, discuss our second quarter results as well as provide an update to our full year guidance. During Q2, shares of BNL continued to season in the public market due to a variety of factors, including most notably, index inclusion and continued market acceptance of our defensive growth profile. I'm very pleased to see the momentum as it further validates our differentiated strategy and enhances our access to capital, allowing for continued execution of our external growth objectives. On June 28, we successfully executed on our first follow-on offering, issuing 11.5 million common shares at a price of $23 per share less underwriting discounts and commissions for net proceeds of $253.5 million. We used the proceeds to immediately pay down all outstanding borrowings under our $900 million unsecured revolving credit facility and intend to use the remaining proceeds to fund future acquisition opportunities. Following the completion of the offering, our net debt was approximately $1.4 billion, resulting in net debt to annualized adjusted EBITDAre of 4.76x at quarter end. As a reminder, we currently hold a BBB rating from S&P as well as a Baa3 rating from Moody's and intend to maintain a leverage target of less than 6x on a net debt to annualized adjusted EBITDAre basis. Limited near-term debt maturities, a robust liquidity profile and ample leverage capacity positions us to continue to pursue accretive acquisition opportunities in the second half of the year. We remain committed to maintaining a conservative balance sheet and maximum financial flexibility to support our defensive growth mentality. Now turning to our second quarter financial results. We reported AFFO of $52 million during the quarter or $0.33…

I'd like to conclude today's prepared remarks by reiterating my confidence and excitement in where we are positioned today heading into the second half of the year. Our defensive growth focus, grounded and industry-leading diversification has proven to result in a predictable operating profile, which allows us to focus on executing on our external growth objectives. A conservative balance sheet and robust liquidity profile resulting from our inaugural follow-on offering has positioned us to execute on an exciting pipeline of acquisition opportunities. I hope all of our listeners have a relaxing and safe conclusion of your summer, and we look forward to connecting again with you in the fall. This concludes our prepared remarks. Operator, we can now take questions.

[Operator Instructions] The first question comes from John Kim with BMO Capital Markets.

I had a question on the Ryerson portfolio that you made during the quarter. Can you comment on the seller, whether or not it was a sale-leaseback transaction? And regardless, if there's an opportunity to do more transactions with the seller?

John, sure. It was a sale-leaseback transaction. It was done with Ryerson Corporate and their team. So obviously, worked on our lease form, which was positive in our view and started a very good relationship with them. And to your question as to whether there's an opportunity for future business, I think that's a reasonable expectation. If I'm not mistaken, Ryerson owns somewhere in the neighborhood or has somewhere in the neighborhood of 200 facilities on a national and international basis. And I think they've had a good execution with us and would expect that they might do some future sale leaseback activity. So one that is an important relationship for us to continue to cultivate.

Okay. And my second question is on the earnout. You earned the first two tranches of it. It looks like given your share price performance, you were on pace to obtain the final two tranches in the fourth quarter this year. Can you remind us what is your expectation and what's contemplated in guidance for the year?

Sure. Ryan, do you want to jump in and cover that one?

Sure. In terms of guidance, we have factored in triggering those two tranches between now and the end of the year. And as you said, I think where we're trading today and where those trigger points are, we're certainly north of that, and it's based on a 40-day VWAP and they're not open for triggering until September, so.

The next question comes from Ronald Kamdem of Morgan Stanley.

Just going back to sort of the industrial assets and portfolio. I just would like some general commentary on what you're seeing in the market in terms of cap rate movements. Some of your peers have noted that cap rate compression, maybe it's still compressive and maybe it slowed. Just sort of curious what you guys are seeing out there.

Sure. Thanks, Ron. I think from an industrial perspective, certainly saw some compression earlier in the year, and that has persisted a little bit as well. So for us on the industrial side, we're looking at transactions, call it, 5.75% to 6.25% range just on a very general basis, Again, our industrial is a fairly broad segment of property types. So we do have a little bit of an ability to continue to think differently than just pure play investment-grade warehouse and distribution work. So continuing to do some work in the food processing space, the flex space, the manufacturing space, which you see a little bit with some of the transactions we talked about today. And so those are all contributing factors into where pricing for us is. But see that general band is sort of where we're transacting and talking about new opportunities in the industrial space.

Great. And then just the last thing was just on -- can you just give us an update on just your watch list, if anything has changed there? Maybe how much bad debt is baked into the guidance? I assume it's sort of given how well the portfolio has done during COVID, I assume it's pretty similar to historical levels, but just some commentary there would be helpful.

Yes. I think you phrased it well. It's pretty de minimis and just ordinary course things that we're following from a credit perspective, given the 100% collection of base rents. That's one that is well in hand and well managed at the moment. I think the one thing that has changed from a perspective, just over the last quarter, it's worth reemphasizing is we have started to think a little bit more constructively about casual dining opportunities. We had that on our watch list/sort of no fly list for a period of time during the height of the pandemic. In the last quarter, we've been more open to looking at some opportunities within that space. A few transactions are out there that we're considering. And so nothing imminent, but one that sort of has moved off the no fly list from our perspective. So that's probably the key change I'd highlight.

[Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Chris Czarnecki for any closing remarks.

Thank you so much. I just would like to thank all of our shareholders and analysts that joined us today. I appreciate the ability to share some very positive news on what we've done in the second quarter and look forward to concluding the third quarter on a position of strength and giving an update to everybody at the end of October. Enjoy the rest of the summer and stay well. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.