Broadstone Net Lease, Inc. (NYSE:BNL) Q1 2023 Earnings Call Transcript May 5, 2023

Operator: Hello and welcome to Broadstone Net Lease’s First Quarter 2023 Earnings Conference Call. My name is Emily and I’ll be your operator today. Please note that today’s call is being recorded. I will now turn the call over to Mike Caruso, Senior Vice President of Corporate Strategy and Investor Relations at Broadstone. Please go ahead.

Mike Caruso: Thank you, operator and thank you everyone for joining us today for Broadstone Net Lease’s first quarter 2023 earnings call. On today’s call you will hear prepared remarks from CEO, John Moragne; President and COO, Ryan Albano; and CFO Kevin Fennell. All three will be available for the Q&A portion of this call. Before we begin, I would 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 2022 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 John.

John Moragne: Thank you, Mike and good morning everyone. In what continues to be a challenging macroeconomic environment, I’m proud to report our first quarter 2023 results. Our core mission is to create long-term stockholder value through investing in and managing net lease real estate. There remains a lot of uncertainty in the market as the Federal Reserve continues its balancing act and the fight against persistent inflation and major headwinds surface in the banking world. As stewards of investor capital we believe a conservative, prudent, and selective approach to capital allocation is the best path to navigate this uncertain market and our first quarter results reflect that belief. While we sourced and evaluated billions of dollars in potential new acquisitions, given current pricing dynamics and market risks, we did not feel that cap rates had increased enough to justify significant outlays of capital.

During the first quarter, we were purposeful in how we evaluated opportunities sourced year-to-date and limited our pursuit to only those investments that we believe were priced appropriately and accretive to earnings. Times like these require discipline and selectivity but also creativity and opportunism as the debt capital markets and the banking systems adjusted to higher interest rates and structural dislocations in lending we saw opportunities to partner with our existing tenants as well as developers who have turned to us as an alternative financing solution. Through these relationships, we were able to secure creative and accretive ways to deploy capital on a risk-adjusted basis into existing tenants and relationships in real estate with strong fundamentals.

As I stated in February, we are not interested in growth for growth’s sake, but rather we are focused on making prudent capital allocation decisions that drive sustainable and accretive earnings growth over the long-term. This has always been a core BNL principle and one that is critically important in the current environment. While we don’t expect uncertainty and volatility to dissipate in the near term we do believe the strength of our existing portfolio and fortified balance sheet have positioned us to continue to deliver consistent and reliable results for our shareholders. With 221 different tenants in 54 different industries our best-in-class diversification, defensively positions BNL to weather this period of sustained uncertainty and economic pressure.

While substantially all our tenants’ underlying operating profiles remain healthy, we believe a heightened level of scrutiny is only prudent given today’s backdrop and are paying close attention to tenants who may be more susceptible to the topical pressures of today’s environment including tenants with capital structures that may face refinancing risk in the near and medium term. Our portfolio continues to demonstrate its resiliency despite many of the macro headwinds that have captured headlines as of late as evidenced by 100% rent collections and 99.4% occupancy in the first quarter. As of quarter end, only two of our 801 properties were vacant and not subject to a lease. Market conditions like these also demand a flexible and fortified balance sheet which BNL certainly has at 5.1 times leverage on a net debt to annualized adjusted EBITDAre basis we have ample liquidity and flexibility to fuel our selective growth strategy for the remainder of 2023.

Prudent capital markets execution last year has afforded us the ability to make decisions we want to not decisions we have to. More to come from Kevin on this. On the capital allocation front, we continue to find ourselves in an extended period of price discovery as seller expectations remain high and lag changes in both public and private buyer cost of capital. Periods of dislocation like this always provide unique opportunities, many of which we have been able to successfully capitalize on. First, we have had continued success selling assets that we believe possess heightened credit and/or residual risk and we have done so at attractive accretive cap rates. These types of sales provide the simultaneous benefits of mitigating risk within the current portfolio while building dry powder to be accretively recycled at attractive spreads.

Second, we have had success sourcing opportunities as an alternate financing provider given the conditions in the traditional debt markets. Our relationship-based approach to investing has yielded a pipeline of opportunities to partner with our existing tenants and revenue-generating capital expenditure projects that provide a mutually beneficial solution. These projects have helped us to continue to deploy capital at accretive yields in addition to our more traditional acquisition sourcing channels. We have also seen an increase in opportunities to partner with developers on build-to-suit transactions. Most notably a 200-plus million state-of-the-art, temperature-controlled food distribution facility. Opportunities like this, will make market dislocations exciting and are the reward for maintaining our discipline and selectivity throughout the year.

This milestone transaction, will add the single largest asset to our portfolio and provide numerous long-term benefits for our shareholders, most importantly growth in BNL’s future earnings profile. Through this transaction, we have locked in an accretive yield and corresponding investment spread on a high-quality asset that would not have been possible just a year ago. This coupled with a long-term lease, with a leading operator that includes solid fixed annual rent escalations, will translate into consistent earnings growth over the life of the investment. We are focused on making prudent capital allocation decisions, that drive value for our shareholders over the long-term, not just in the current calendar year and this opportunity encapsulates that mission and showcases our ability to source, and execute on accretive opportunities despite the current challenging environment.

And with that, I will now turn the call over to Ryan, who will provide additional details on the health of our existing portfolio, our accretive capital recycling efforts and our investment activity including this exciting build-to-suit opportunity.

Ryan Albano: Thanks, John and thank you to all the listeners, who have joined us today. Given current economic conditions and business pressures, let’s start with portfolio monitoring. We’re currently focusing our efforts on both granular, individual tenant considerations, as well as higher more thematic factors. From an individual tenant standpoint, we continue to closely monitor our exposure to Carvana, Red Lobster and Green Valley Medical Center, which we discussed in detail on our previous earnings call. While there have been no material updates since our call in February, we remain confident in our investments and the underlying value of the real estate despite many of the recent headlines concerning these tenants. These three tenants coupled with a handful of other smaller tenants, as a percentage of ABR, comprised the individualized tenant-specific portion of our watch list, which is largely consistent quarter-over-quarter.

Our more thematic monitoring efforts include focusing on tenants, whose capital structures may be susceptible to near-term refinancing risk, given the current conditions in the lending market. Rent collections and occupancy continue to be the most accurate real-time measures of the health of our portfolio. And as John stated earlier, we’re 100% and 99.4% respectively during the first quarter. While prudent management requires enhanced portfolio monitoring efforts in these conditions, it also presents opportunities for our proactive asset management initiatives. The current market environment has provided a unique opportunity to sell assets we believe possess outsized credit and/or residual risk, at attractive pricing levels due to the quality of the underlying real estate.

During the first quarter, we sold three properties for gross proceeds of $51.9 million at a weighted average cash capitalization rate of 6%. The dispositions include a $32 million sale of an office asset, which together with a simultaneous lease buyout of $7.5 million represented an all-in cash capitalization rate of 6.1%. As a result of the sale, we reduced our office exposure to 5.8% of ABR at quarter end. Since quarter end, we have sold an additional three assets for a total of $39.4 million at a weighted average cash capitalization rate of 5.2% and have a pipeline of additional dispositions at various stages of execution. Together with our first quarter dispositions, we’ve sold six properties for gross proceeds of $94.3 million, at a weighted average cash capitalization rate of 5.4%.

We intend to continue to strategically sell assets to proactively mitigate risk, within our existing portfolio while also generating proceeds to be accretively redeployed. On the external growth front, we intentionally slowed the pace of our investment activity to start 2023. We believe that cap rates have not yet fully absorbed the amount of risk in the market and should move incrementally higher. Supply and demand dynamics, stubbornly high seller expectations and continuing pricing discovery have made it challenging to identify opportunities that we believe are appropriately, priced on a risk-adjusted basis especially, in the non-investment-grade segment of the market. During the first quarter, we sourced approximately $8 million of new acquisition opportunities the large majority of which we elected to pass on given our view on a miscalibration between risk and return.

Sellers continue to slowly adjust their price expectations, and in many cases have delayed transacting in hopes of achieving more attractive pricing in the future when market conditions stabilize. With more traditional sourcing channels providing suboptimal opportunities, we have focused on finding creative ways to continue to accretively deploy capital, starting with revenue-generating capital expenditure projects with our existing tenants. First quarter investment activity totaled approximately $20 million at a weighted average initial cash cap rate of 7%, which included a single one-off retail property acquisition for $5.2 million. The majority of our first quarter investment activity came in the form of revenue-generating capital expenditure projects, with existing tenants.

During Q1, we invested a total of $14.8 million in two of our existing industrial assets at a weighted average initial cash cap rate of 7%. Partnering with existing tenants as a capital provider has been a compelling way to generate attractive, accretive yields while simultaneously growing the underlying value of our assets with very little risk. We have seen an increase in these types of opportunities, as lending conditions become tighter and currently have $18 million of unfunded commitments towards future investments in our existing properties, with a growing pipeline of additional potential future projects currently under active consideration. We currently have $225.2 million of investments under control, which we define as executed contract or letter of intent.

The substantial majority of under-controlled volume is comprised of the build-to-suit transaction John mentioned earlier, which is sourced from an existing relationship who we have worked with in the past. Acting as a capital solution, we have the opportunity to fund the development of a 1 million square foot state-of-the-art temperature-controlled food distribution facility in Florida leased to a leading North American operator. While we are still negotiating and finalizing terms of the deal, we expect to fund approximately half of the total, estimated $200 million during 2023, the balance of which will be funded next year with targeted delivery and subsequent rent commencement estimated for early Q4 of 2024. During the construction period, we will earn capitalized interest at an attractive yield on our invested capital, which upon the commencement of rent translates into an initial cash yield in the low 7s.

We are acting solely as a capital provider and not an at-risk development party. Upon completion, the asset will be subject to a long-term lease with annual rent escalations consistent with our industrial portfolio. Given where we are in the deal process, we will provide additional disclosure following contract execution. We are thrilled with the opportunity to invest in a high-quality asset in a strong market, with an attractive return profile on a risk-adjusted basis that will generate future earnings growth. This transaction demonstrates our patient and thoughtful approach to capital allocation, which will drive value for our shareholders for years to come. And with that, I will now turn the call over to Kevin.

Kevin Fennell: Thank you, Ryan, and good morning, everyone. As John reiterated again this quarter, even with significant capital in hand with an attractive cost, we are focused on selectively deploying available dry powder on opportunities that are both accretive and appropriately priced on a risk-adjusted basis. We once again ended the period in a position of financial strength and flexibility despite there being no capital markets activity during the quarter. Given the disposition activity that Ryan outlined, we were able to reduce the balance on our revolver by nearly $90 million in the quarter, resulting in more than $890 million of remaining borrowing capacity. This, combined with our low leverage profile and no significant maturities until 2026, continues to provide us with ample liquidity, as we selectively pursue investment opportunities.

Our substantially fixed rate debt capital structure has insulated us for many of the upward pressures associated with higher for longer interest rate expectations. All of our debt, excluding our revolver, is fixed at a weighted average interest rate of 3.7% after considering the effect of our nearly $974 million interest rate swaps that have staggered maturities beginning in 2024 and running through 2034. As we think about equity, we continue to view our ATM as a core component of our overall capital market strategy that allows us to opportunistically consider raising equity alongside investment volume if needed. Given no activity in the quarter, we maintained $145 million of capacity on the current program. Turning to our financial results.

During the quarter, we generated AFFO of $67.5 million or $0.34 per share, versus $65.6 million or $0.36 per share in Q4. The decline was driven by the effect of additional shares from settling the 13 million share forward offering at the end of the year. We incurred $8.5 million of cash G&A expense in the quarter, which tracks in line with our guidance. At our quarterly meeting, our Board of Directors approved a $0.28 dividend per common share in OP unit, which is a 1.8% increase from last quarter. This represents our fifth semiannual dividend increase since our IPO and is payable to holders on or before July 14, 2023. The dividend continues to be well covered, aligns with our targeted AFFO payout ratio in the mid to high 70% range and represents an attractive dividend yield relative to many of our net lease peers.

Finally, we are maintaining our 2023 per share guidance today, with an AFFO range of $1.40 to $1.42 per share, so we are increasing our disposition volume given the success we have experienced year-to-date. We will continue to evaluate guidance revisions as we progress further into the year and gain more clarity into both the pace of asset repricing and conditions in the capital markets. Our guidance range reflects the following key assumptions: investment volume between $300 million and $500 million, which includes amounts to be funded this year under the aforementioned build-to-suit transaction; disposition volume between $150 million and $200 million, which has been revised higher; and total cash G&A between $32 million and $34 million which remains unchanged.

As a reminder, our per share results for the year are sensitive to both the timing and amount of acquisitions, dispositions and capital markets activities that occur throughout the year. And with that, we’ll now open the call up for questions.

Q&A Session

Operator: Thank you. Our first question today comes from Anthony Paolone with JPMorgan. Please, go ahead.

Anthony Paolone: Okay. Thank you. Good morning. My first question is just on the large build-to-suit that you announced. I know you said, you’ll give more details I guess in future quarters. But can you maybe talk a bit more about say the credit behind it nature of the either operator or developer or any further details there.

John Moragne: Thanks Tony. As we mentioned, that one still needs to — we got to dot some Is cross some Ts on it. So there’s going to be some more information that we’ll have in the future. But as we talked about in our prepared remarks, we’re really excited for this one. It’s a really solid operator, good credit, great location, really stable business model in terms of the distribution that happened that will be happening out of the facility once it’s completed. This is a transaction that we really feel is unique for us right now and is unique in the net lease market. One of the things that gets talked about often is with the additional stress that’s being put on the financing system. Traditional debt capital markets, the availability of financing for build-to-suit has gotten a lot more stressed than it has in the past 12 months.

And so it provides us a really great opportunity for companies like us to step in as an alternative source of capital here in a way that a year ago the markets were perfectly operating and be able to — they find the financing they were looking for. And if we were to look at this on the backside of it, when it was fully stabilized and built out, the pricing would be significantly below where it is today and we would be able to afford it properly. So we’re very excited about it. There’s a lot more to come on it once we have a definitive documentation and we’re going to look forward to talking with you all in more detail at that point.

Anthony Paolone : Okay. And then just as a follow-up. Maybe can you talk a bit about how you thought about maybe selling more assets and maybe buying back stock and I get the economics of that and how that makes sense. But how do you think about in terms of the context of just shrinking the overall business and I guess sort of like the negative leverage on scale that comes with that.

John Moragne: Yes. So maybe the first place to start with there is that we continue to believe our shares are undervalued. And so that’s not a place that we’re looking at from a cost of capital standpoint in terms of how we’re going to grow this portfolio. We are still in a place, as Ryan talked about where we have the opportunity to sell off assets that we have some concerns about from a risk mitigation standpoint, whether it’s tenant’s credit profile, underlying industry business operations or it’s a lease rollover risk at the end of it, but they continue to have solid real estate fundamentals that are attractive for other sets of buyers outside of sort of long-term holders in the net lease industry. So with that, dislocation we’re able to execute on those as we talked about in the high-5s and low-6s relative to where we are then reinvesting in the 7% cap range, we feel it’s a great accretive spread.

We get excited about that and it’s something that we’ll continue to lean into for so long as we’re looking at a share price that we think is undervalued. Now the repurchase program, we put it in place so that we have a tool. There’s limited windows throughout the year where you could put one in place. And if you ever were in a position where you wanted to be able to utilize it, which we are not right now as you saw we put it in place but didn’t buy no shares back. And we’re not currently in a place where we think that’s something that we would do. But it’s another tool in the toolkit. Kevin would tell you we have been adding tools to the toolkit each year over the last three years since we went public and this is just the latest one that we added.

Anthony Paolone : Okay. Thank you.

Operator: Our next question comes from John Kim with BMO. Please go ahead, John.

Eric Borden: Hey. Good morning, guys. It’s Eric on for John. I just want to start with the acquisition pipeline. Outside of the investments under control, what’s the size of the pipeline today? And then if you could comment on the split between opportunistic investments and traditional triple-net assets and maybe the split between marketed and off-marketed transactions would be great. Thanks.

John Moragne: So in the pipeline, I think, everyone can agree, volumes are lower this year. And particularly, if you’re comparing it to 2021 and 2022, you’re back at a point where volumes look a lot more like that 2017 to 2019 period, 2017, 2019. For us if you take a step back and think about what’s available out there on the pipeline, I think there’s a set of facts that pretty much any net lease company could agree to right now. In addition to lower volumes, seller expectations continue to sort of stubbornly stay where they are, particularly for the best product. The best product in the marketplace, you’re seeing sellers that are looking to hold or are waiting even to post it for sale. Financing conditions are much tighter.

Levered buyers are predominantly out at this point, because of the higher for longer interest rate environment. You’re seeing a little bit of stress now in the 1031 market. And then, on top of all that, cap rates have moved a lot in the last 12 to 15 months, but it looks like they plateaued a little bit. So, when you take the view in the bond market and how people are pricing in risk for operators and you compare with the cap rates, we don’t necessarily believe that the cap rates have moved all the places where they should have. So, you can have all of those facts and agree to them 100% and you can still choose to go in a couple of different directions. What we’ve done is we’ve chosen to be selective, prudent, patient with how we’re looking to allocate capital.

There’s others that can agree with everything I just said, and decide to work their way up the risk spectrum because they want to continue to deploy capital and put it into whatever product is available out there. So in terms of the volume that’s out, it’s a pretty healthy split in terms of deals on assumptions new product on the sale-leaseback market as everyone is anticipating, we are seeing more product come as a result of difficulties in getting debt financing. So the sale-leaseback market is becoming more attractive for CFOs to think about how they’re going to finance their business. And maybe just to bring it back to the build-to-suit opportunity that’s a perfect example, that opportunity came to us because the financing the capital source provider on that was not able to commit and complete their obligations.

And so they had a broken financing situation and brought it back to us. So, overall, the market is certainly leaner than it was before, but we’re still seeing ample opportunity to execute on. We just are taking the conservative approach to it in the way that we’re going to be deploying capital right now.

Eric Borden: Okay. That’s helpful. And then more of a big picture one for me. Just kind of curious from what the foot traffic data from the underlying consumer is telling you just curious if you’re seeing any change in the consumer behavior across regions or affluence levels and anything you could point to where you yourself are maybe seeing some signs of changing the behavior. I understand that, the retail and the restaurant portion is not as predominant as industrial, but just curious if you have any thoughts there?

Ryan Albano: Sure. We have certainly seen some softness at least in the casual dining space as you look back over the last year or so but generally remain healthy. I think that foot traffic seems to continue to correlate along with AUVs at those sites. So we feel pretty comfortable about it. We’ve seen a little bit of softening. But at the end of the day it hasn’t been a significant amount overall. And I wouldn’t really say that there’s been any difference of impact categorically by region or by concept specific.

Eric Borden: That’s helpful. Thanks, guys. Appreciate the time.

Operator: Our next question comes from Michael Gorman with BTIG. Michael, please go ahead.

Michael Gorman: Yeah. Thanks. Good morning. I wonder, if we could go back to the acquisition market just for a minute and kind of walk through the $8 billion that you underwrote how much of that was strictly a pricing issue? And then I think Ryan made an interesting comment that some of those sellers didn’t actually wind up transacting. So is there any sense for how much of that is still out there because of the bid-ask spread, or did the — what amount of that actually went to a seller ultimately even if the pricing was mismatched on your side?

Ryan Albano: Sure. A little hard to track through across the board. What I would say is overall, we have certainly seen some transactions even dating back to maybe Q2 Q3 of last year that stalled out from seller expectations that reapproached the market some of which have reapproached at higher pricing levels — or I’m sorry lower pricing levels higher cap rates and our clearing at those levels. When I think about sort of the mix on a cap rate basis I’d say probably about 50-50 in terms of what’s above a 7% cap rate versus what’s below maybe a little bit more heavily weighted towards what’s above in terms of the breakdown of that $8 billion.

Michael Gorman: Okay. Great. And then maybe as a follow-up I guess part of what I was also getting at is within that $8 billion did any of the transaction activity fall out, because you’ve rethought credit standards or you rethought kind of economic exposure because of what’s going on in the market beyond just kind of pricing as you think about putting money to work?

Ryan Albano: Yes absolutely. I would say the good majority of that was actively passed on by us versus passing on from a pricing expectation perspective. when I look at the breakdown I’d say the majority of that did fall into categories that were either credit related or real estate fundamental related where we weren’t comfortable with the pricing in this current market. We feel that it needs to be a bit wider to price in the risk and we passed on it. That said, there were certainly some opportunities that continued forward at aggressive pricing levels that wouldn’t make sense for us today. But generally speaking, if you think about where our cost of capital is from the capital that, we’re actually deploying based on disposition proceeds as well as dry powder. Where the market has transacted and where you’re seeing our peers transact at the 7% plus mark we could have made all of those work economically we just chose not to.

Michael Gorman: Got it. Got it. That’s helpful. And maybe last one for me is just — and I guess, maybe this goes a little bit back to the off-market question. But — are you seeing any difference in the market today between kind of the secondary property market versus the sale-leaseback origination and just maybe any increased pressure on some of those companies looking to originate because of the other lending options that maybe they had in the past that they don’t have now. Is that becoming a better target market?

Ryan Albano: I’d say early stages, I think seller expectations are still sort of working their way through. And I also think that companies are beginning to work their way through their capital stack and understand what their options truly are and what access to capital they have or don’t and at what pricing level. So I think that’s sort of at early stages at least in terms of the sale-leaseback market. What has become abundantly clear is that, we are seeing opportunity on the build-to-suit side of things where the access to capital has dried up a bit and we are seeing a good amount of opportunities on that front for new build build-to-suit opportunities. And I think that we can be a solution in that market as time moves forward here.

Michael Gorman: Great. Thanks for the time guys.

Operator: Our next question comes from Ki Bin Kim with Truist. Please go ahead.

Ki Bin Kim: Thanks. Good morning. Any updates on Red Lobster you can share in terms of the store performance in your portfolio?

Ryan Albano: Yeah. I would say Red Lobster performance has been — we’re a little bit on a lag in terms of financial reporting. But what I would say is that we’ve seen it pretty neutral quarter-over-quarter. We did see some recent news out of Thai Union that was positive on the Red Lobster front. So it seems to be early stages of turnaround. But overall, we feel pretty good about our position, the value we have on that real estate as well as the operating performance at those sites quarter-over-quarter.

Ki Bin Kim: And any other tenants that might be entering the watch list of note?

Ryan Albano: Nothing of note. We had one additional add to the watch list and we had one come off. So we’ve had a couple more immaterial items I’d say maybe just an update on the larger ones that we’ve talked about before Red Lobster. I just gave you update from a Carvana perspective. They continue to move along. We did see some recent news on some of the creditors considering a debt for equity swap, so that’s just early kind of positive news potentially. And then from a Green Valley Medical perspective, they continue to progress towards hospital licensing.

Ki Bin Kim: And just last one here. The Bob evidence is that mostly restaurants, or is that actually like a distribution facility? And is that a pretty vibrant tenant today?

Ryan Albano: We have both. We have industrial facilities as well as restaurants comfortable with both operating performance at both look good.

Ki Bin Kim: Okay. Thank you.

Operator: Our next question comes from Ronald Kamdem with Morgan Stanley. Please go ahead.

Unidentified Analyst: You have Jenny on for Ron. So thanks for taking my question. So my first is can you talk a little bit more about like how much dry powder do you have now? I see you raised your disposition guidance. Maybe talk a little bit more on any specific sector that you’re focused on to sell? Thanks.

Kevin Fennell: Yeah, I think the first part of the question I think you’ve heard us probably talk in the past having some pretty clear religion around staying inside at 6x leverage metrics. So if you think about where we are today there’s quite a bit of room there. And more thematically I’d say we operate the business in that mid-five range. So if you take that in conjunction with the availability we have on our revolver can sort of back into a pretty clear answer that we’ve got room to run inside of our guidance range. And then as you pointed out, on the disposition front that’s sort of unique and opportunistic capital source for us that we’ve had a lot of success with. And Ryan, if you want to talk about the deposition piece?

Ryan Albano: Sure. In terms of dispositions, we have another call it $75-plus million of active disposition activity working its way through various stages of negotiating all around the six cap mark. And then behind that we have a couple of hundred million of opportunities that we’ve identified that we could bring to market and think about these sellers in this market.

Unidentified Analyst: Thanks. With regards to your acquisition pipeline I see the cap rate is 7%. Can you talk a little bit more like how much more do you expect the cap rate more is it like a 8 or like what’s your comfortable level? Thanks.

Ryan Albano: Sure. I’d say there’s not a specific target in mind. We’re very focused on risk versus return and we’re being very selective. So the things that you see us executing on or advancing in the pipeline are around that 7% mark. We have specifically chosen not to push out on the risk spectrum. We certainly could. There are dearth of opportunities to do so and whatnot but we feel that we’re not interested in taking on the additional risk. We don’t think it’s pricing to the spot that we’d be comfortable with at this point. So I’d say you should expect us to continue to identify opportunities around that 7% yield zone, but that’s not a hard and fast rule.

Unidentified Analyst: Thanks.

Operator: Our next question is a follow-up question from Ki Bin Kim from Truist. Please go ahead.

Ki Bin Kim: Hello. Thanks again. Just a quick question on dispositions, when you take a look at the portfolio, I guess, what is the kind of total scope of possible dispositions that you can make at a low-six cap rate or lower? Because obviously with the cost of capital where it is, is it realistic to assume, that you’re going to continue to sell assets to buy higher yielding assets.

Ryan Albano: Sure. I’d say in general, we certainly feel that our assets are from a market pricing perspective, well inside of our stock price right now. So we think that there’s plenty of room and opportunity to execute on the disposition front, in today’s market. The two key themes that we focused on early on were properties and tenants where we felt like there was either heightened credit risk or heightened residual/rollover risk associated with those properties that we didn’t necessarily want to incur. But at the end of the day the market was pricing aggressively. We think we still have continued opportunity to be where we would be a seller today and we’ll continue to execute there.

Ki Bin Kim: So maybe I can ask it in a different way. Quick Service Restaurants likely will get a lower cap rate than some of your other asset classes. So when you kind of go down the category list, I guess, what does that basket look like? Just trying to get a sense of like, in our models and forecasting I’m just trying to understand like, how much more runway you have in terms of selling these accretive deals.

Ryan Albano: Sure. Look, I think the runway is far and long. When we look today at the opportunities that I just referenced earlier in the Q&A session, we’ve got a couple of hundred million dollars of opportunities that we could bring to market that aren’t at market right now as well as another $75 million to $100 million that are actively being negotiated for sale. So I don’t think it does a whole lot of use to go beyond that at the moment. We’re focused on executing one-by-one with what’s in front of us today and accretively redeploying that. I think that gives us plenty of runways to accomplish our guidance this year and continue to fuel the machine.

Ki Bin Kim: Okay. Thank you again.

Operator: At this time, we have no further questions registered. So I’ll turn the call back to John, for closing remarks.

John Moragne: Thanks everybody. Really appreciate the questions today. Thank you for joining and your interest in BNL. We’re looking forward to seeing many of you at the upcoming conferences. If you’re not already on our schedule, please reach out to Mike Caruso, we’ll get you on the calendar. With a strong portfolio, accretive pipeline, fortified flexible balance sheet. We really believe we’re well positioned to navigate 2023 and grow in 2024 and beyond. We thank you all for your time. And hope you all have a great day.

Operator: Thank you everyone for joining us today. This concludes our call. And you may now disconnect your lines.