The COVID-19 pandemic caused a slowdown in the number of companies making their debut on the stock market. However, the end of summer has brought a resurgence of initial public offerings (IPOs) including another net lease real estate investment trust (REIT), this one with a long history in the space.
Broadstone Net Lease (BNL) plans to offer 33.5 million shares of its Class A common stock in an IPO set for the week of September 14. The initial share price is expected to be between $17 and $19 per share, and the company hopes to raise $603 million. In its Securities and Exchange Commission (SEC) filing, BNL said it will use the funds to repay loans, for general capital, and for future acquisitions. Broadstone will list as ticker BNL on the New York Stock Exchange.
Broadstone's profit centers may invite comparisons with another net lease REIT that recently had its IPO in August, NETSTREIT (NYSE: NTST). Broadstone, however, has a much longer history. It was founded in 2007 and has delivered 11.9% in average annual total compounded returns, previously operating as a private REIT.
Some key facts about Broadstone
Broadstone currently has 633 net lease properties across 41 U.S. states and one in Canada. Most of the properties are freestanding single-tenant, net leased real estate.
Here's a closer look at the company:
- Together, the properties have a gross asset value of around $4 billion.
- Its rental breakdown is currently 44% industrial, 20% healthcare,15% restaurants, 10% office, 9% retail, and 2% other.
- The tenant base is made up of 182 tenants and 168 brands across 54 industries.
- No single tenant or brand accounts for more than 2.5% of the portfolio's annualized base rent (ABR).
- The average remaining lease term for its properties is 11 years.
- President and CEO Christopher Czarnecki has been with the company since 2009.
- Top tenants include Red Lobster, a chain owned by Darden Restaurants (NYSE: DRI); Jack's Family Restaurants; Axcelis Technologies (NASDAQ: ACLS); Hensley; Outback Steakhouse, the core of Bloomin' Brands (NASDAQ: BLMN); Krispy Kreme Doughnuts (NYSE: KKD); and BluePearl pet hospitals.
The fact BNL is weighted toward industrial makes it appealing, as does its large distribution of tenants that includes a mix of well-capitalized companies. However, like any other net lease REIT, BNL has felt the effects of the pandemic.
For the second quarter, BNL's revenues increased by 16.4%, mostly due to the growth in the company's real estate portfolio. The company spent $1 billion in 2019 to acquire 74 properties. BNL's net income decreased in the second quarter by 1.4%, and the adjusted funds from operations (AFFO) increased by 33%.
Like many other REITs, BNL had to offer some tenants rent deferrals due to COVID-19, but it has seen these requests fall, and by June it had collected approximately 93% of second-quarter base rents due. At the end of the quarter, all BNL properties were 99.5% occupied. One tenant, Art Van Furniture, filed for bankruptcy and closed all its stores earlier this year. BNL was able to retenant six of the 10 stores leased to Art Van Furniture but was not able to collect all of the rent owed so far.
During the quarter, the company also sold three properties and repaid a net $105 million on its senior unsecured revolving credit facility. It did suspend its monthly distribution for several months during the heart of the pandemic.
Will BNL be a buy?
Broadstone didn't buy any properties in the second quarter, but part of the reason it is planning to become public is to have greater access to capital to pursue more acquisitions. It is expected to pay a healthy distribution yield of 5.6%. Given this REIT's long track record of success, it seems like a promising potential addition to an income-centered portfolio.