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UBS sees Broadstone Net Lease stock as fairly valued amid portfolio shift

EditorEmilio Ghigini
Published 11/14/2024, 05:41 AM
BNL
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On Thursday, UBS initiated coverage on Broadstone Net Lease (NYSE: BNL) stock with a Neutral rating and a price target set at $18.00. The firm's stance on BNL is neutral due to the current market pricing in the company's shift in strategy, which involves moving away from healthcare and towards industrial development.

This move is seen as a positive simplification of BNL's portfolio, yet UBS is looking for more proof of the long-term viability of this new direction.

The real estate investment trust (REIT) has been proactive with its development projects, committing $454 million through September 2024, including $97 million allocated for 2023. However, the analyst noted that a high cost of capital could pose a challenge to future endeavors.

Broadstone Net Lease has recently issued 2 million shares at an average price of $18.50 per share to raise approximately $37 million in capital through its forward at-the-market (ATM) offering.

The proceeds from the issuance are expected to be increasingly used to fund investments, particularly as BNL shifts away from healthcare assets. While the company is predicted to grow its adjusted funds from operations (AFFO) by 1% in 2025, which aligns with consensus estimates, this rate places BNL at the lower end of its peer group.

In market comparison, BNL's stock trades at a 9% discount to its Triple Net peers, which is a larger discount than the historical average of 6%. An analysis of near-term core AFFO multiples against projected 2025 AFFO growth shows a correlation of 0.72, indicating that BNL's stock is fairly valued. The consensus growth forecast for BNL's 2025 AFFO is 2.0%, which supports a 12 times multiple, matching the multiple applied by UBS in their valuation.

In other recent news, Broadstone Net Lease has been proactive in repositioning its portfolio, notably by reducing its healthcare exposure and focusing on build-to-suit investments.

Despite a slight year-over-year decline in AFFO, CEO John Moragne reaffirmed the company's full-year guidance during their Third Quarter 2024 Earnings Conference Call. The company reported on the substantial completion of a 1 million square foot UNFI distribution center, contributing to a 7.2% initial cash yield.

Broadstone Net Lease's AFFO guidance for the year remains steady at $1.41 to $1.43 per share, with a dividend of $0.29 per common share declared. The company also anticipates an increase of at least $33 million in ABR by Q4 2025 and H1 2026, thanks to a $405 million committed development pipeline.

Despite a 2.7% decline in year-over-year AFFO, attributed to lower lease revenues and increased expenses, the company remains optimistic about future growth.

Broadstone Net Lease's strategic shift to build-to-suit investments and careful portfolio management is expected to drive growth in AFFO per share. Furthermore, with a strong development pipeline and plans to close on a $290 million pipeline of build-to-suit opportunities, the company is well-positioned for future growth.

InvestingPro Insights

Broadstone Net Lease's strategic shift towards industrial development, as discussed in the article, is reflected in some of the current financial metrics and insights from InvestingPro. The company's impressive gross profit margin of 94.36% for the last twelve months as of Q3 2024 suggests efficient management of its property portfolio, which could be beneficial as it focuses on industrial assets.

An InvestingPro Tip highlights that BNL has raised its dividend for 5 consecutive years, indicating a commitment to shareholder returns despite the ongoing strategic changes. This is further supported by the current dividend yield of 6.82%, which may be attractive to income-focused investors in the REIT sector.

Another relevant InvestingPro Tip notes that BNL's liquid assets exceed short-term obligations, which could provide financial flexibility as the company pursues its development projects mentioned in the article. This strong liquidity position may help mitigate some of the challenges associated with the high cost of capital that UBS analysts have pointed out.

For investors seeking a more comprehensive analysis, InvestingPro offers 7 additional tips for Broadstone Net Lease, providing a deeper understanding of the company's financial health and market position.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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