BNL - Broadstone Net Lease: A Solid REIT Choice For 2024

2024-01-03 13:22:05 ET

Summary

• Broadstone Net Lease is an industrial-focused real estate investment trust with a diversified portfolio.
• The trust has a strong occupancy rate and offers a well-covered dividend with a 7% yield.
• Broadstone's stock is selling at a moderate FFO multiple, making it an attractive buy for passive income investors.

Broadstone Net Lease Inc . (BNL) is a promising industrial-focused real estate investment trust that I have high on my buying list for 2024.

Diversified, But Industrial-Anchored Real Estate Portfolio

Broadstone is no STAG Industrial, Inc. (STAG) which is a pure-play industrial REIT that a lot of retail investors own in their portfolios. Broadstone does have an industrial anchor focus in the sense that industrial properties account for more than half of the trust's real estate portfolio, but the real estate investment trust also owns other properties in the healthcare restaurant retail, and office sector.

Broadstone produces $390 million in base rent annually, of which a tiny majority, 51%, is derived from its industrial core assets. Healthcare facilities make up 18% of the trust's annualized base rent, whereas Restaurants account for 14% of ABR and Retail for 11%.

Broadstone is an industrial-focused net lease trust that is primarily focused on the acquisition and management of single-tenant properties. Broadstone owned a Commercial real estate portfolio including 800 properties (38.2 million square feet) worth $4.4 billion, net of accumulated depreciation, as of the end of the third quarter.

Broadstone made the strategic decision to overweight industrial properties in its real estate portfolio years ago, and management has consistently executed this growth plan through the acquisition of warehouse and distribution facilities.

The industrial portion of Broadstone's portfolio now includes 193 properties and 29.4 million square feet. The percentage of industrial properties has consistently increased in Broadstone's investment portfolio quite rapidly, from 31.2% in 2018 to 51.2% as of 3Q-23.

The rest of Broadstone's net lease real estate portfolio looks as follows. Note the relatively small (6%) exposure to the troubled office market.

The portfolio is well-leased and has been for a time. Broadstone sported a 99.4% occupancy as of the third quarter, offering up a better occupancy on its portfolio than NNN REIT (NNN) and Realty Income Corporation (O) , as examples.

How Safe Is The Dividend?

As is the case for most industrial-focused real estate investment trusts, Broadstone is offering passive income investors a well-covered dividend and a near 7% dividend yield.

Judged on the trust's twelve months dividend payout ratio, I think the dividend is more than safe in 2024 and will probably continue to grow also.

Over the last year, Broadstone earned a cumulative $1.56 per share in funds from operations and paid out $1.11 per share, which translates into a pay-out ratio of 71%.

A 7% Yield Selling For 11x FFO

The FFO multiple, I think, is what makes Broadstone Net Lease a compelling buy for long-term-oriented passive income investors in 2024.

Broadstone Net Lease produced $0.39 per share in funds from operations in 3Q-23, which translates into an annualized FFO potential of $1.56 per share. The trust's stock is selling for $17.46 at this very moment, which reflects back to us a very moderate FFO multiple of 11.2x.

STAG Industrial is selling for 17.3x FFO and Prologis, Inc. (PLD) , a juggernaut of an industrial trust with a market value of $126 billion, is selling for 24.1x FFO.

My Conclusion

Broadstone Net Lease is an attractive and well-run industrial-focused net lease real estate investment trust that has made major progress in recent years in transforming its real estate portfolio and shifting more of its assets into industrial real estate.

Like STAG Industrial, the trust is profiting from growing demand for warehouses and distribution centers, as eCommerce is one of the most powerful drivers in the industry.

Broadstone's portfolio is well-leased and throws off a boatload of funds from operations that get passed through to passive income investors.

The stock has a moderate FFO multiple, surely in comparison to industrial-focused trusts, and a reasonably low pay-out ratio to suggest that the dividend could grow in 2024.

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