Build-to-suit Development And Prologis Partnership Will Enable Future Success

Key Takeaways

• Focus on build-to-suit pipeline and strategic partnerships enhances development prospects, driving future revenue growth and earnings potential.
  
• Effective risk management stabilizes cash flows, while financial discipline offers flexibility, collectively contributing to steady potential earnings growth.
  
• Macroeconomic uncertainty, potential tariffs, and reliance on certain industries and financing strategies expose Broadstone Net Lease to revenue, margin, and earnings growth risks.

Catalysts

Broadstone Net Lease, Inc. (the “Corporation”) is a Maryland corporation formed on October 18, 2007, that elected to be taxed as a real estate investment trust (“REIT”) commencing with the taxable year ended December 31, 2008.

• Broadstone Net Lease is focused on expanding its build-to-suit pipeline with committed developments amounting to $305.9 million, providing visibility for revenue growth through 2026 and 2027, which should contribute to increasing future revenues.
  
• The company's strategy of partnering with strong developers like Prologis for new projects enhances its development pipeline, contributing to NAV accretion and positive capital recycling opportunities, which can positively influence future earnings.
  
• Broadstone emphasizes managing portfolio risks effectively with a high percentage of rent collection (99.1%) and low tenant concentration, which should support stable cash flows and potentially boost net margins.
  
• The strategic investment in industrial properties and relationships with investment-grade tenants, like Stellantis, positions the portfolio to potentially benefit from increasing industrial demand, supporting steady revenue growth.
  
• Financial discipline through proactive credit risk management and maintaining a fortified balance sheet, including recent credit facility refinements, provide flexibility to pursue growth, contributing to potentially higher earnings.

Broadstone Net Lease Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Broadstone Net Lease's revenue will grow by 5.4% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 26.0% today to 25.8% in 3 years time.
• Analysts expect earnings to reach $131.2 million (and earnings per share of $0.72) by about May 2028, up from $113.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $187.1 million in earnings, and the most bearish expecting $51.9 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 35.3x on those 2028 earnings, up from 26.7x today. This future PE is greater than the current PE for the US REITs industry at 26.7x.
• Analysts expect the number of shares outstanding to grow by 0.35% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.98%, as per the Simply Wall St company report.

Broadstone Net Lease Future Earnings Per Share Growth

Risks

• The macroeconomic uncertainty and impact of potential tariffs pose a risk to consumer spending and may increase expenses for Broadstone, which may negatively affect their future revenues and net margins.
  
• The reliance on certain industries facing credit risk, especially Zips Car Wash and Stanislaus Surgical, underscores potential bad debt challenges that could impact earnings negatively.
  
• Incremental focus on tariffs impacting manufacturing tenants may create revenue risk given that 17.5% of Broadstone's ABR comes from manufacturing, which might face input cost increases.
  
• Increases in competition for industrial properties due to onshoring trends could lead to higher acquisition costs, potentially compressing margins and impacting earnings growth.
  
• Financing strategies relying heavily on revolving credit facilities might expose Broadstone to interest rate risks that could impact their net margins and financial flexibility if rates rise.

Valuation

• The analysts have a consensus price target of $19.0 for Broadstone Net Lease based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $22.0, and the most bearish reporting a price target of just $15.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $509.0 million, earnings will come to $131.2 million, and it would be trading on a PE ratio of 35.3x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of $15.97, the analyst price target of $19.0 is 15.9% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.