Broadstone Net Lease - Earnings Call - Q4 2020
February 25, 2021
Transcript
Speaker 0
Hello, and welcome to Broadstone Net Leases Fourth Quarter twenty twenty Earnings Conference Call. My name is Carrie, and I will be your operator today. Please note that today's call is being recorded. I will now turn the call over to Kevin Fennel, Senior Vice President of Capital Markets at Broadstone. Please go ahead.
Speaker 1
Thank you for joining us today for Broadstone Net Lease's fourth quarter twenty twenty earnings call. On today's call, you'll hear from our CEO, Chris Arnecki and our CFO, Ryan Albano. Before we begin, we want to remind everyone that the following presentation contains forward looking statements, which are subject to risks and uncertainties, including, but not limited to those related to the ongoing COVID-nineteen pandemic. Should one or more of these risks or uncertainties materialize, actual results may differ materially. We caution you not to place undue reliance on these forward looking statements and refer you to our SEC filings, including our Form 10 ks for the year ended 12/31/2020, 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 CEO, Chris Arneggi.
Speaker 2
Thank you, Kevin, and welcome to everyone joining our Q4 twenty twenty earnings call. I hope that 2021 is off to a safe and healthy start for everyone. It's hard to believe that we're almost six months past the B IPO closing, leading up to and then during the roadshow, we talked with analysts and investors about what they should expect from B and L in the quarters after the IPO. First and foremost, the team communicated a continued intense focus on portfolio management and building on our already strong collections results from the 2020, while also maintaining our high percentage of leased assets. Next, we communicated an intention to continue executing on our diversified net lease investment strategy with an overweighted focus on industrial, healthcare, select retail and QSR properties.
Finally, we outlined several capital markets initiatives, including achieving a second credit rating and gaining access to the investment grade bond market as an important source of future long term debt capital. The B and L team tackled all of these objectives in Q4 and into 2021, and I'm very excited to provide an update on the substantial progress we have made since our last call. As we ended 2020, our portfolio continued to perform well, our and collection results were among the best in the net lease space, coming in at 99% for the fourth quarter. With broad vaccination efforts underway, near daily updates regarding incremental vaccine supply and distribution and reducing case counts across most of the country, we are encouraged that there finally appears to be light at the end of the tunnel. Our collections trends have only continued to strengthen into 2021, and Ryan will provide an update on January and February's results in a moment.
Since the IPO in late September twenty twenty, our team has been acutely focused on deploying the capital we raised into accretive acquisitions. Our investments during the fourth quarter were very complementary to Broadstone's existing portfolio in terms of the mix of asset types and sourcing channels as well as overall property and lease characteristics. We closed six transactions comprising 19 properties for a total investment of $100,300,000 The weighted average first year cash cap rate was 6.9% for the quarter's investments. The leases include 1.9% weighted average rent escalations and a fourteen point four year weighted average remaining lease term, complementing our existing portfolio's long lease duration and best in class annual rent escalations. Acquisitions were diversified across our core property types, though heavily skewed towards industrial at 77% of the total.
The transactions were split evenly between sale leasebacks and assumptions, and we are successful in sourcing opportunities from multiple channels, including add on acquisitions with existing tenants and repeat transactions with brokers and real estate developers. I want to briefly highlight two of the transactions. Representing the largest acquisition in the quarter, we purchased a newly completed 644,000 square foot warehouse and distribution facility, tenanted by a leading contract brewer outside of Minneapolis, Minnesota for approximately $41,000,000. The property has a remaining lease term of approximately eleven years and 2% annual rent escalations. The company manufactures and distributes beverages for itself and third parties, and the facility is strategically located and key to the tenant's operations as it serves as the distribution center for its nearby production and bottling facility.
We also added seven quick service restaurants located across three states to our existing master lease with Jack's Family Restaurants, our second largest tenant exposure, for approximately $13,200,000 The master lease provides for 2% annual rent increases and the remaining term of the master lease was increased to approximately sixteen years in connection with the acquisition of these new properties. USR Space broadly demonstrated resiliency during the pandemic and Jack specifically continued to perform well and grow its footprint. We also made incremental investments in our existing portfolio of properties. In the fourth quarter, we invested $3,000,000 with two tenants, which will generate a 7.5% weighted average return. In total, during 2020, we invested $10,300,000 in our existing portfolio on which we will generate a 7.4% weighted average return over the remaining lease term.
The timing and size of these investments can be difficult to predict, but we routinely engage our tenant base to source opportunities like these that create incremental value for both the tenant and our assets. During the fourth quarter, we sold six properties for approximately $24,000,000 at a weighted average cap rate of 9.5% on tenanted properties, representing a gain of approximately $1,000,000 over original purchase price. These sales were generally of non core assets, including several dental clinics that we have been proactively reducing our exposure to over the past several years. For the year, we sold 24 properties for net proceeds of $77,500,000 at a weighted average cap rate of 7.7% on tenanted properties, representing a gain of $3,300,000 open original purchase price. As of December 31, our portfolio includes six forty properties across 41 states and one property in Canada.
The portfolio was 99.2% leased and had a weighted average remaining lease term of ten point seven years with 2.1% annual rent escalations. Occupancy declined approximately 60 basis points from Q3 twenty twenty. This change was primarily driven by short term leases at two of our former Art Van sites expiring during the quarter. We had just eight vacant assets reported at year end, three of which have now been retended with leases commencing in 2021, including the largest former Art Van site. Our forward lease maturities are also highly manageable, representing just 0.4% of ABR in 2021 and a total of 2.9% of ABR through 2023.
As part of our ongoing property management process, we evaluate lease maturities and potential expirations on a five year forward looking basis, and we'll provide relevant updates as they occur. Finally, during the quarter, our number one tenant exposure, Red Lobster, refinanced its large near term debt maturity, which should provide should naturally provide the company some additional financial flexibility as it continues to navigate the pandemic and makes progress returning to normal operations. Our balance sheet remains strong and provides us with significant financial flexibility as we continue to deploy the capital we raised in our initial public offering. The strength of our balance sheet and portfolio outperformance was recently substantiated by S and P as we received an initial credit rating of BBB with a stable outlook in January. This credit rating comes with immediate benefits in the form of reduced interest costs on the majority of our existing debt, primarily our bank term notes and revolving line of credit.
A second investment grade credit rating also further diversifies our funding sources by providing us with access to the investment grade bond market for future issuance. While we typically experience lighter acquisition volume in the first quarter following a strong sequence of closing activity at year end, we are seeing strong flows of potential investment opportunities take shape as we cross the midpoint of the quarter. The combination of the pandemic's creation of have and have not asset types with the continuation of near historically low interest rates has certainly enhanced competition, but we continue to source sufficient quality opportunities to support our near term growth objectives. Brian will speak more about our formal 2021 guidance in just a moment, but we expect to complete between $450,000,000 and $550,000,000 of new acquisitions during the year. With ample liquidity and expanded access to capital, our team is highly active in sourcing and evaluating investment opportunities.
We currently have an active opportunity set north of $900,000,000 As I've said before, our diversified strategy and experienced team ensures we have the flexibility to pursue growth where we find attractive risk adjusted returns while also limiting the potential negative effects of disruption occurring within any single sector or with any single tenant. It also affords us the ability to be highly selective within each of our property types. We are reviewing significant levels of opportunities within each property type and naturally instituting greater selectivity in sectors experiencing higher degrees of disruption from the pandemic. I'm very proud of what our management team has accomplished in our first full quarter as a publicly traded company, and I'm excited by our team's energy and focus on the opportunities we have ahead of us. The current market backdrop requires us to be nimble and sometimes patient, and we remain focused and committed to generating attractive risk adjusted returns while creating long term value for our shareholders.
I'd now like to turn the call over to Ryan to go over our results in greater detail.
Speaker 3
Thanks, Chris, and thank you all for joining us today. I'd like to begin by providing an update on our balance sheet and overall liquidity position. We ended the fourth quarter with $61,000,000 of cash after adjusting for the dividend paid on January 15 and currently have full availability on our $900,000,000 credit facility. We carried $1,400,000,000 of net debt resulting in net debt to adjusted EBITDAre of 5.15 times as of December 31. As Chris mentioned, we received a BBB rating from S and P in January.
And as of February 1, the interest rates on our $965,000,000 of unsecured bank term loans decreased by 25 basis points, which represents over $2,400,000 of annual interest savings. Our ample liquidity, prudent leverage profile, robust internal cash generation driven by our resilient rent collections and access to multiple sources of capital come together to provide significant near term financial flexibility as we continue to execute on our diversified investment strategy while maintaining our strong credit profile. In efforts to offer insight to our robust internal cash generation, I would like to provide further detail on our collection activity as we have effectively returned to pre COVID collection levels. As Chris mentioned, as of today, we collected 99% of fourth quarter rent, which continues the favorable trend we observed in the third quarter when we consistently experienced high 90% collection rates. Additionally, as of today, we have collected 99.899.7% of rent for January and February, respectively.
As of December 31, we are scheduled to receive less than 1,000,000 of remaining deferred rent. As of February 1, all deferral and abatement periods have ended. The single partial rent abatement we granted in 2020 continued to pay rent as we agreed. And as we did during Q3 twenty twenty, we received additional rent for the percentage of sales clause in the agreement, which totaled $200,000 in the fourth quarter. Finally, we have not received any additional requests for rent relief since the early part of the pandemic.
Before moving on to our financial results, I'd
Speaker 2
like
Speaker 3
to take a moment and briefly cover our continued progress and substantial resolution of the assets previously leased by Art Van Furniture. We are happy with the outcome that we were able to achieve with the patient and methodical approach to navigating both the bankruptcy proceeding and long term asset management strategy related to these assets. We mentioned on our last call that we leased six of our 10 assets representing 71% of Art Van square footage to American Signature in the second quarter under ten year leases at 72% of prior rents. In the fourth quarter, we leased one of the smaller remaining assets to a leading mattress retailer for a 134% of prior rents. And subsequent to quarter end, we entered into a ten year lease for the largest asset, representing 18.4% of the former Art Van square footage for approximately 70% of prior rents upon lease commencement later this year with a with an experienced regional furniture and mattress operator who has been in business for over eighty years.
We are currently pursuing releasing and sale opportunities for the final two assets, which only represent 9.5% of former Art Van square footage or less than point 3% of our total ABR, and we consider the Art Van matter to be effectively resolved. Now turning to our Q4 financial results. We reported AFFO of $46,900,000 in the fourth quarter, representing zero three zero dollars per diluted share. While in line with our expectations, this is a decrease on a per share basis when compared to Q3. This is primarily attributable to the additional shares issued in connection with our IPO coupled with the full impact of additional public company costs, which were partially offset by $1,400,000 of interest savings from debt repayment.
These results reflect the first full quarter of per share performance since the IPO, especially considering the late December closings for nearly all of the Q4 acquisitions from which we expect to see full earnings contribution beginning in Q1 twenty twenty one. In our view, Q4 per share results provide a post IPO run rate estimate of the business and serve as the basis for performance comparison as we execute on our growth plan. For the fourth quarter, we incurred $8,000,000 of cash G and A expenses and $9,200,000 of total G and A. The sequential increase in cash G and A was largely driven by a full quarter of public company costs, notably including D and O insurance as well as incremental expenses from performance related compensation. As previously discussed, we expect to continue achieving economies of scale with respect to G and A expenses over time as our portfolio growth outpaces our cost structure.
As we have continued to ramp our acquisition pipeline and gain clear insight into operating expenses after the IPO, we are providing initial guidance today for 2021 that we expect to refine during the course of the year. For the 2021 full year, we expect to report total AFFO between $1.27 and $1.33 per diluted share, which represents an implied growth rate of 5.8% to 10.8% compared to what we consider to be our run rate view of 2021 based on our Q4 per share results annualized. This guidance is based on the following key assumptions: acquisition volume between $450,000,000 and $550,000,000 disposition volume between $50,000,000 and $100,000,000 and total cash G and A expenses between $32,000,000 and $35,000,000 It's worth noting that our per share results for the year are particularly sensitive to both the timing and amount of investment activity, dispositions and capital markets activities that occurred during the year. Finally, at our 02/19/2021 board meeting, our directors set a 25¢ distribution per common share in OP unit to holders of record as of 03/31/2021, payable on or before 04/15/2021. We will evaluate future increases to our dividend with our board as we continue to grow our earnings base and intend to target a long term AFFO payout ratio in the mid-seventy percent to low-eighty percent range.
With that, I will turn it back over to Chris.
Speaker 2
Thanks, Ryan. I'll end our prepared remarks by reiterating that we remain excited by the opportunities set in the market and the expanded capital markets tool set at our disposal. Fourth quarter continued to prove the quality of our strategy and demonstrate our ability execute over the long term. We are focused on continuing to deliver positive results for our shareholders with an emphasis on long term value creation and attractive risk adjusted returns. I'm incredibly proud of what the B and L team's hard work and look forward to a great 2021.
This concludes our prepared remarks. Thank you for your time and attention this afternoon. Operator, you can now open up the line for questions.
Speaker 0
To withdraw your question, please press star then 2. We do ask that you limit yourself to two questions and a follow-up. If you have further questions, you may reenter the question queue. The first question is from Caitlin Burrows of Goldman Sachs.
Speaker 4
Everyone. Good afternoon. Acquisitions in the quarter were healthy volumes and cap rates in sectors that I think a lot of investors want to be in, industrial, QSR, etcetera. So can you just give some more detail on how you sourced the six transactions in the quarter?
Speaker 2
Caitlin, it's Chris. A couple of notes around that. I think our sourcing was very well diversified during the quarter. One of our larger industrial acquisitions was with a developer that we had transacted with before, so that was fairly natural for us. The QSR transaction was with an existing tenant that, we had been looking to expand with over time.
Also, on the health care front, that was with an existing tenant as well. And then, one of the other industrial transactions was one that we had, started working on prior to COVID, outbreak, and then the seller had chosen to put it on the shelf and came back to the market. So we were sort of first in line to reengage on that matter and then also working the brokerage network as well for one of the smaller industrial opportunities. So very broad sourcing in that regard.
Speaker 4
Got it. Okay. And then thinking out to 2021 guidance assumes $500,000,000 of acquisitions at the midpoint. How does this compare to your historical average acquisition activity? And how does the pipeline that you see today compare to historical levels?
I think you mentioned in the prepared remarks that it was about $900,000,000 now. Just wondering how that compares to what you've worked on in the past.
Speaker 2
Sure. I think the $500,000,000 at the midpoint is fairly consistent with our, call it, five year historical average, if you think between 2015 and 2019, excluding 2020, for obvious reasons, with the IPO and whatnot. So it feels like that's a very accomplishable number given the quality of the team and the depth of their relationships. Sitting here today, first quarter, you know, can occasionally be a little bit quieter, but we feel like the opportunity set in that $900,000,000 range that I referenced is certainly a point in time, you know, what the team is working on, but, it's really nicely diversified across, virtually all those property types that we're focused on, select retail, the the medical, industrial. And so, you know, from our perspective, that's a very good sign, with just the the the amount of opportunities for us to work on and to keep our selectivity high and keep our focus where it needs to be.
So I'm feeling good about where that is at the moment.
Speaker 4
Got it. Okay. And then maybe last one. Just on the G and A side, I know you guys touched on how there were more public company costs. As you think about 2021 and then also going forward, would you say that the increase versus the second half of 'twenty is just due to those public company costs?
And then when we go out further, do you think then it should be more stable, or how do you see that growing or not over the next, call it, three years?
Speaker 2
Sure. I'll give you sort of the the quick increase in routing capacity in the longer term. You know, the biggest increase we saw from a public company cost was our D and O insurance. That that drove a lot of it. We did, you know, sort of guide towards where we thought G and A would be in q three, obviously, with that information.
But the the increased D and O cost is one that is factored in there now, so I think that helps the estimate. And then maybe, Ryan, you want to talk longer term?
Speaker 3
Sure. In terms of 2021 and maybe longer term, the way we're thinking about it is we're right in line with what we communicated during the Q3 call, where we're looking at cash G and A in the $8,000,000 a quarter mark, give or take. So we came in there for Q4 and what we realized. And then that kind of carries through our guidance as we think about 2021 as a whole. As we migrate into the longer term view, I would say probably incremental in the sense of G and A.
We certainly expect our overall top line to far outpace the growth in G and A as we move forward here with only sort of incremental cost add as we migrate into the longer term.
Speaker 4
Got it. Okay. Thank you.
Speaker 0
The next question is from Anthony Paolone of JPMorgan.
Speaker 5
Your Healthcare vertical is fairly unique. You don't hear as many of your net lease peers talking about that as a focal point. Can you just talk about just the opportunity set there and yields and how big that could be over the next twelve months as you think about deal flow?
Speaker 2
Sure. So and I think you know this, Tony, but for for the benefit of everybody, you know, we do have a focus on health care. It is a little bit more niche oriented being either hospital affiliated, off campus, or or large regional physicians groups, and then some adjacencies within there. It's one that, if you look at historical volume, does move around a little bit. The transactions we did in Q4, the one transaction was with an existing tenant.
Some of the transactions we're working on in Q1 are with existing tenants who are in that large regional physicians group, a specialist area of focus where they are growing their practices. There are some portfolio opportunities that we're also currently contemplating as well. Know, cap rates somewhere in mid sixes, maybe a touch on that for certain circumstances as well. Again, it's one of an opportunity set that does flex up and down. And and at the moment, there's certainly a number of interesting transactions that we're we're contemplating in there.
So
Speaker 5
Okay. Thank you. And then just my other item I wanted to touch on is maybe for Ryan. You you'd mentioned the percentage rent number in four q, and and I and I didn't write it down fast enough. But also just if you could help us like, what happens with that as we kind of roll forward and how to think about whether, you know, that stays or how that was structured, something related to an abatement.
Speaker 3
Sure. In terms of that percent rent number, the last time we'll really see it is in Q4 show up. The abatement itself burned off in January. So we shouldn't see that going forward. And I'd say, you know, it was it was fairly incremental during during q four.
Speaker 5
Okay. So we're thinking about, like, rolling the run rate. We don't have to really make an adjustment for that so much. It's just kind of the base rent that that you guys laid out.
Speaker 3
Correct.
Speaker 5
Okay. And the other detail was just any order of magnitude or dollar amount around what the annualized incremental rent is from backfilling yard van boxes?
Speaker 2
That was done at the the large site that we released was done at 70% of prior rents. I'm struggling to put a dollar figure on that for you. I'm sorry. Off the top of my head. But maybe we can follow-up with that to you or Ryan.
I don't know.
Speaker 3
Yeah. We can we can follow-up dollar amount wise. But as I think about it, the sixth out of the 10 that we had initially released that we talked about in the last call was about 72% of of previous rents. The one smaller location that we released during Q4, again, pretty small and nominal in nature, but we released that at about 134% of prior rents. And then the larger asset that we released at the after the end of the quarter, we released at 70%, as Chris had mentioned.
Speaker 2
Okay. I'll go back and look
Speaker 5
at those rents. Thank you.
Speaker 6
Thank you.
Speaker 0
The next question is from John Kim of BMO Capital Markets.
Speaker 7
Good afternoon. Just given the rise in interest rates, I'm just wondering if retail or other sectors become more attractive to you or if there's a risk that acquisition volume is lower than expected? Or are you just willing to take that narrow spread right now?
Speaker 2
Sorry, could you just repeat the last piece? It got a little choppy for me, John.
Speaker 7
Oh, sorry. Sorry. Are you willing to take the more narrow spread between interest rates and cap rates in this current environment? Or do you look at other asset types outside of industrial as far as the weighting of your acquisitions?
Speaker 2
Yes. I think that's sort of maybe fundamentally the what I view the strength of our model is the ability to selectively move between some of the property types depending on where competition is most robust. So I think it's it's you probably heard this enough over the last few weeks from some of our peers that industrial competition today is is quite robust, and that's, you know, more for probably more generic distribution than anything else. But, you know, the ways we fight against that to try to keep our spread strong is is one is certainly thinking about adjacencies within the industrial space that we have the ability to do and have done before. So, you know, looking at some food processing opportunities at the moment, which we've done in the past, and and, you know, those are ways to keep our spread a little bit stronger.
And then as as you alluded to, we can also pivot to some of our other asset classes where we think there's a better risk adjusted return. So certainly thinking about that with regard to health care and select retail opportunities, which, you know, at the moment are are a little bit bigger part of our q one view, but then ultimately still see the ability to add solid industrial and QSR a little bit later in the year as well. So I don't know if there's anything else you'd throw in there. Sorry.
Speaker 3
Yes. Maybe if I could add to that. I would just say that we certainly contemplated some of that in our guidance and how we thought about the world. And frankly, we feel very confident in the full year number and the guidance that's given on the acquisition front, knowing that borrowing costs or interest rates in general could be a little bit higher in compressed spreads in certain areas, as Chris mentioned, say, industrial or whatever. But we feel very confident in those numbers given the our diversified investment strategy and our ability to source in different areas where spread compression
Speaker 8
has less of an impact. Yes.
Speaker 2
I that's great. That's well said. And the confidence in the guidance is strong for myself, especially where we sit today.
Speaker 7
Okay. And you guys mentioned the timing of the acquisitions and sales would impact your your earnings this year as well as the seasonality in acquisitions, which which tends to be in the in the half of the year. But I guess two part question. One, is there anything that you could do on your side to change that seasonality or is that more from the seller's point of view? And also if you could provide any more color on whether or not the pace of acquisitions and dispositions will be spread evenly beginning in the second quarter or more towards, again, the second half of the year?
Speaker 2
Yes. So seasonality, I I wouldn't go too far into the seasonality component. I mean, there is there it is it exists, and and, you know, first quarter is is probably the one where we see it a little bit the most. I think for us, it's maintaining a a vibrant pipeline at all points and being and thinking about it in the long term. Also, working on on forward commitment opportunities, especially with tenants that we already know and and, you know, could be a part of their puzzle for for future growth as well, and we're doing some of that, and and that gives us longer term visibility into the pipeline.
What I'd say, you know, in terms of of where we sit today, feeling feeling good about the guidance as I said a moment ago. But, you know, in terms of timing, it it certainly has some near term impacts on AFFO if if timing is more back weighted, but, you know, really concentrated on the long term. And, you know, our our guidance and with respect to the midpoint of our guidance has a slight weighting towards the second half, really, you know, keeping the focused on the long term. So we've incorporated that into our thinking just based on our best estimate of where we sit at the moment.
Speaker 7
Okay. And my final question, Chris, you mentioned in your prepared remarks that we're near the six month anniversary of your IPO, which coincides with the expiration of the lockup restrictions. Do you have any indication of what percentage of the owners of lockups are long term owners versus those more likely to sell upon the expiration date?
Speaker 2
Sure. So I think, you know, it's it's a very diversified shareholder base. It's 4,000 plus individuals and and hundreds of hundreds of wealth managers. We have worked very hard to stay in close contact with them over the period as we do with our new institutional shareholders. We we had a specific meeting run through January to talk about all the progress we made.
I think the general feedback was people were feeling positive and appreciated that we were, I guess, stealing from your headline last night of executing our business plan and seeing seeing the, you know, progression in what we were doing. So not specific thoughts around the around any changes in the shareholder base. The entire group is very important to us, and we want to provide them as much clarity on the future business as we can and expect them to be long term holders. I don't know, Ryan, is there anything else you want to put in there because you're part of that with me as well?
Speaker 3
No. I think you summed that up well, Chris.
Speaker 6
That's very helpful. Thank you. Thanks.
Speaker 0
The next question comes from Vikram Malhotra of Morgan Stanley.
Speaker 8
Thanks for taking the question. Just maybe going back to the acquisitions both on the industrial and healthcare side, can you maybe just walk us through kind of it just seems broadly acquisition that picked up across the board, public, private, net lease, even other participants. What sort of competition you're seeing in both segments? What are your expectations kind of for pricing through the year? And just any differences that you're seeing between the two segments?
Speaker 2
Sure. Yes. I think there certainly is a number of folks continuing to take a look at the net lease space. In in many ways, it is one of the more investable spaces in the real estate market today just with with less uncertainty around some of the the business constructs. You know, for us, we're looking at a pretty broad range of transactions and obviously a broad and diversified set of acquisition opportunities.
So that leads to different competition, different competitors in different segments. Industrial, we've seen certainly private buyers or PE or institutional buyers compete with us on transactions to to to the extent that we obviously know who who the competitor is. More on the, on the QSR and select resell front, you you tend to see more of, the specialist within the the public REIT space be there for us, as a competitor. On the health care side, because we do have a a more niche focus there, I think we we don't see as many public REITs involved there but tend to see more private buyers and and more private aggregators of of health care assets. So that's that's a little different.
You know, more broadly, I'd say actively thinking about transactions between in in sort of, you know, goalpost six to 7% cap rate range, feel like we can be very effective at at the mid six zone plus or minus on on each in each individual transaction, and that's generally how we're thinking about acquisitions at the moment.
Speaker 8
Okay. Great. And then can you just remind me, I may have missed this earlier, sorry, but within the guidance, what are sort of expectations for occupancy through the year?
Speaker 2
Sure. So occupancy, as I said in the opening remarks, was down about 60 basis points, but we'll sort of be reverting all other things being equal with the the leasing of the large Art Van site in Chicago, which was about 45 basis points of the change plus some other leasing we've done. So we would see occupancy being fairly robust. I don't know, Ryan, if we have a specific thought around the exact number that's plugged into the model. But
Speaker 3
Sure. In terms of guidance and just thinking about it from a modeling perspective, we've used an assumption of 50 basis points on cash rent in terms of occupancy leakage or vacancy and such. I think that feels comfortable with where the portfolio sits today, our general rent collections and so on. We've historically run inside of that, probably close to about 40 basis points.
Speaker 2
Where collections are for January and February being just, what, 20 basis points shy of on perfection, I feel like that's that's appropriate for the moment.
Speaker 8
And then just lastly, to clarify, remember, you know, last time you'd outlined, and sounds like this time as well, you don't need kind of, you know, external capital necessarily to kind of get these acquisitions done. But assuming kind of you see a lot more volume, you know, over the next, twelve months is higher than you anticipate. Can you just talk about in an event where the volumes are just much higher, how are you thinking about funding?
Speaker 3
Sure. I think you are absolutely correct. As we think about the full year guidance and the plan that we've outlined, we can accomplish that without necessarily additional capital. As we progress forward and if the opportunity set arises and we would exceed those numbers, we'd certainly come back to the market for some additional capital. The way that we're thinking about it is, obviously, we'll be looking to put an ATM in place.
In the near term, I'd say certainly sooner than needed, so that it is a tool that we could use. And certainly, depending on the size of the capital needed, we can, think about the other avenues to that capital, whether it be follow on offerings or so on.
Speaker 8
Great. Thanks so much.
Speaker 0
The next question is from Michael Gorman of BTIG.
Speaker 9
Yes. Thanks. Good afternoon. I was thinking about this, that you're coming up on the six month anniversary, but obviously, you have a much longer track record in your time as a private company. And if I think about the inverse of the interest rate question and as you think back, whether it was the taper tantrum in 'thirteen or the run up in the ten year in 2016, when you Do you see more acquisition opportunities?
Are you seeing more disruption in your acquisition opportunities when there is that kind of volatility in the borrowing market where maybe some of your competitors can't get financing until you get better looks?
Speaker 2
You know, that's a it's funny. I was actually thinking some something along those same lines, this morning and getting ready for the call. What I would say is, you know, in thinking back to the taper tantrum, and I remember that very explicitly is that volume at that time was a little bit disjointed, people kind of waited to see how their their their cost of capital shook out. So I think that slowed the market down. In 2016 and the more rise in rates, I I I don't specifically recall there being a huge disruption in volume.
And and what I actually think is really the more impactful component around cap rates and opportunities is the supply demand component and how many players are in the market at any given time. I think you do lose some of the smaller buyers when there is an inflection in debt cost of capital, and that is on the margin incrementally better for us, you know, because we do have and are happy to do 5,000,000 and $10,000,000 acquisitions, and that's been part of our bread and butter. But I don't I don't think that changes the bigger macro picture of well capitalized institutional buyers who are thinking more long term and and are able to lock in some of their cost of capital early. So I think it's just a little bit of a push and pull depending on the situation there. But if if there was an opportunity to be a little bit more acquisitive because some others pulled back, we're all in.
Excited about that and and have the team to do it.
Speaker 9
No. That's great. And then, Chris, just kinda following up. As you talked about, you do kind of have a specialized strategy in some of the property types. And I I wonder if as you've been a public company now for for the past six months and and kind of getting the story out there and and being maybe a little bit more visible, do you find more opportunities seeking you out in terms of acquisitions, whether it's a specialized health care facility, people that are more aware of Broadstone as a buyer of properties in in their space?
Speaker 2
You know, I think that's that's an observation that our acquisitions team is starting to, I'd say, absorb or feel a little bit. And I I think we were always seen as a a very credible buyer as a private company, but I think it doesn't hurt to have the incremental eyeballs on us to to use it use the term as being a public company. It is very clear that we have greater access to capital from our in our proverbial toolkit. That was a big part of the going public discussion for us with new and old investors was, you know, being able to do some of the the the capital markets transactions that we've we've talked about, such as the ATM overnights, the high grade bond market now that we've got the second rating. So those things are are a little bit less of a discussion point.
So I think, you know, that only builds over time as we continue to execute on our our strategy. But I'd say the acquisitions team, especially when they're doing sort of interviews and and whatnot, have have at least seen a little bit of incremental, value in us being public and having a little bit more of a name brand.
Speaker 9
Great. Thanks very much.
Speaker 7
Thanks, Michael.
Speaker 0
The next question is from Ki Bin Kim of Truist.
Speaker 6
Thanks. Good afternoon. Can you just talk about the nature of some of the industrial assets you're buying and the relinkability of those assets should there ever be tenant turnover? Because I assume the more run of mill distribution warehouses, clean rectangular boxes with good parking coverage may have different risk characteristics than a man manufacturing plant that might have more kind of specific build out.
Speaker 2
Yeah. Absolutely. I think since we did a couple of, industrial acquisitions, I think, as you said, the warehousing space is is more generic and serves a more obvious client base. I think what you've keyed into is something that we pay a lot of attention to. So one of the smaller industrial acquisitions during the fourth quarter was a manufacturing and warehousing facility.
So you got a little bit of shared space there. And it's there, you're focused very closely on the broader market, what other types of users are available for that space. And think there can be a slightly smaller user base, but you've got to both have confidence in the tenant and and who you're buying and their operational capacity there. But you also then take the broader look of of the real estate fundamentals and and try to think through who's the next user if you did have a a change over there. So for us, it's really just about balancing those two things and sort of taking it back to our our broader focus of, you know, not a pure real estate buyer, not a pure credit buyer, trying to balance those things and make sure they're they're reasonably in check with each other.
And I think it varies asset to asset. I don't know, Ryan, is there anything else you'd you'd jump in there with?
Speaker 3
No. I think that's a good summary.
Speaker 6
K. Thanks. And in terms of your balance sheet, what are your plans for getting a second credit rating? And if you did get one, is there any kind of tangible benefit to the spread that you're you're getting from the market?
Speaker 2
Sure. Ryan, you want to take that one?
Speaker 3
Sure. So we just recently did get that second credit rating from S and P, and it came in at a BBB flat, so a notch up from where Moody's currently has us. It does provide certainly interest savings immediately on all of our bank term debt, roughly 25 basis points on in place debt today as well as savings on our revolver as we use it. So certainly in place benefits and and also now provides us with increased access to capital via the, the public bond market and and so on.
Speaker 6
Yeah. Sorry about that. That I thought that was my first rating. And any plans on timing for tapping the unsecured bond market?
Speaker 3
Sure. So where we see things, certainly, it's an attractive market today, especially from a cost of debt perspective. And thinking about what that is versus our current cost of debt, it's certainly attractive. What I would say is we don't really have a need for it in the near term, certainly evaluating whether there's something opportunistically to do with the balance sheet. But frankly, I think where it will come into place will be potentially later in the year as we think about putting capital to work and deployment into acquisitions on the line and then looking to take that out into longer term debt such as the public bond market.
So probably not in
Speaker 1
the first half of the year,
Speaker 3
more likely something that would be accessed later in the year.
Speaker 0
The next question is a follow-up from Caitlin Burrows of Goldman Sachs.
Speaker 4
Hi again. I know you talked a little bit before about occupancy, but I was wondering if you could go through what additional credit events, if any, are assumed in guidance, whether that's bankruptcy assumptions, bad debt levels and how that would compare to 2020 or 2019 actual results?
Speaker 2
Sure. Ryan, do you want to
Speaker 3
Sure. So in guidance, we don't have any specific credit events layered into it. What I would say is that we do have a 50 basis point vacancy assumption on or occupancy or vacancy assumption on in place cash rents. So we've historically run somewhere inside of that, call it, closer to 40 basis points, but, we've layered into the guidance and our thoughts around it from a borrowing perspective about 50 basis points and and nothing specific.
Speaker 4
Got it. How that relates to what you mentioned before. Okay. And then I know it's not a target kinda acquisition property type right now, but could you give an update on what you're hearing from your office tenants? And are there some properties you could look to dispose of in advance of lease expirations that are in place?
Speaker 2
Sure. Absolutely. So as you'd expect, continuing to maintain a very close dialogue with our office tenants. And as you noted, know, it's not an an acquisition focus for us at the moment. I think what we continue to see here is that there's there's variability in their thinking, and and they're continuing to, evaluate sort of the return to work on a more fulsome basis.
And and that discussion is obviously more real today than it was a quarter ago. So for us, we continue to stay close, see how they're monitoring. You know, nothing specific on the near term from a sale perspective. And, you know, ultimately, I think the only matter that we've talked about before is is, the nationwide office two two pack that we have that they will not be returning to their office after the pandemic, but we have seven ish years of rent. It goes out to 2028 with them.
And so if there's an advantageous solution for us with respect to that property, we will certainly consider it. But right now, it's just dialogue with the tenant about what they plan to do and how they maintain the building. And then more generally, the office portfolio, just from a position of strength, again, we continue to have the ability to to, be thoughtful about it. The portfolio as a whole, only about 10% of the the gross ABR, strong very strong credit profile for there for us and and seven and a half years So we have the ability to be patient and thoughtful as as people, think through their return to work on a more global basis.
So that's where we sit for the office.
Speaker 4
Alright. Got it. Thanks.
Speaker 0
And this concludes our question and answer session. I would now like to turn the conference back over to Chris Zarnecki for any closing remarks.
Speaker 2
Great. Thank you for all the attention and questions today. Very much appreciate everybody joining the call. We are, as I said, very excited about what 2021 will bring from a growth perspective for Broadstone net lease. I feel like our portfolio is in excellent shape, and the team is focused on all of the things that will deliver a great set of results for our shareholders, and we look forward to catching up with everybody soon.
Thank you so much. Have a great day.
Speaker 0
The conference has now concluded. Thank you all for attending today's presentation. You may now disconnect your lines. Have a great day.