Broadstone Net Lease Q3 2026 Earnings Call Transcript

Broadstone Net Lease (NYSE:BNL) reported third-quarter financial results on Thursday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

Broadstone Net Lease reported a 5.4% increase in AFFO to $0.39 per diluted share for Q3 2026, with strong same-store growth and prudent balance sheet management.

The company completed a $259 million forward equity offering and started three new build-to-suit developments totaling $326 million, with six others reaching stabilization during the quarter.

Broadstone invested $236.6 million in Q3, including a significant industrial acquisition with a 15-year lease term and a straight-line yield of 8.8%.

The company maintained a nearly 100% occupancy rate and collected 99.9% of base rents, while also selling three properties for $12.5 million at a 6.6% capitalization rate.

Project Triborough remains a key focus, with progress on zoning, power agreements, and potential tenant discussions for a data center development.

The company reaffirmed its full-year 2026 AFFO guidance of $1.55 to $1.57 and raised its investment and disposition ranges.

Management emphasized a disciplined, opportunistic approach to capital allocation and a differentiated growth strategy focused on build-to-suit developments.

Full Transcript

OPERATOR

I will now turn the call over to Brent Madle, Director of Corporate Finance and Business Analytics at Broadstone. Please go ahead.

Brent Madle (Director of Corporate Finance and Business Analytics)

Thank you everyone for joining us today for Broadstone Net Lease’s third quarter 2026 earnings call. On today’s call you will hear prepared remarks from Chief Executive Officer John Morano, President and Chief Operating Officer Ryan Albano, and Chief Financial Officer Kevin Fennell. All three will be available for the Q&A portion of this call. As a reminder, the following discussion and answers to your questions contain 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. For a more detailed discussion of risk factors that may cause such differences, please refer to our SEC filings, including our Form 10-K for the year ended December 31, 2025, and note that such risk factors may be updated in our quarterly SEC filings.

Any forward-looking statements provided during this conference call are only made as of the date of this call. With that, I’ll turn the call over to John.

John Morano (Chief Executive Officer)

Thank you Brent and good morning everyone. Before turning to our quarterly results, I would like to quickly address the stark change in the capital markets and macroeconomic environment that we have all experienced recently. While the moves have been materially negative over the last quarter, since this management team took over in 2023, our team has consistently demonstrated our ability to operate this business through broader market volatility of all kinds.

We will continue to operate the playbook that has worked since we started on this journey: disciplined execution, creative thinking, and controlling our own destiny. As many have heard from us over the last couple of years, our degree of selectivity has remained elevated for some time and recent market moves serve more as a validation of our position than as disruption to our plans. In fact, this is exactly the kind of environment we built our strategy for in the first place.

Strong same-store growth and prudent balance sheet management, combined with a differentiated growth strategy that provides long-term visibility into attractive growth without reliance on the usual heavily marketed net lease acquisition channels, works in any environment, but particularly one suffering from the type of volatility and uncertainty that we are seeing today. On to the results. The third quarter was a continuation of the progress we have been driving toward all year and really over the last three years. We generated AFFO of $0.39 per diluted share, a 5.4% increase over the third quarter of last year. We returned to the public equity markets for the first time in four years, completing a $259 million forward equity offering. We started three new build-to-suit developments totaling 326 million and six others reaching stabilization during the quarter.

With our capital already at work and our path forward clearly defined, we believe we enter the fourth quarter well positioned to deliver on our full year guidance and to carry our momentum into 2027. During the third quarter we invested 236.6 million comprised of 63.8 million in a single industrial acquisition, 137.1 million in build-to-suit developments, 35.1 million in transitional capital and 0.6 million in redevelopments. The acquisition, an approximately 544,000 square foot industrial property, was completed at an initial cash capitalization rate of 7.7% with a 15-year lease term and 2% annual rent increases resulting in a straight-line yield of 8.8%.

The three build-to-suit developments we started this quarter total $325.8 million of estimated project cost at a weighted average initial cash capitalization rate of 8.4% and a straight-line yield of 11.3%. In addition to our Colorado project, we started two retail projects in Manor, Texas for Hobby Lobby and Academy Sports. As noted earlier, we stabilized six build-to-suit developments during the quarter totaling $95.3 million of estimated total project investment at a weighted average cash capitalization rate of 7.3%.

Additionally, subsequent to quarter end, our $115 million Southwire project reached stabilization with a first year cash capitalization rate of 7.8%. Adding to the success of the quarter today, our in-process build-to-suit pipeline now stands at approximately 456 million, of which approximately 150 million has been invested, leaving approximately 306 million of remaining estimated investment. From that in-process pipeline, we expect approximately 36 million of incremental annualized base rent to come online between the fourth quarter of this year and the end of 2027. Approximately 2 million of that arrives in the fourth quarter.

Approximately 31 million arrives in the first half of 2027 as Colorado and other projects reach rent commencement and the balance follows in the back half of 2027. That equates to over 8% growth on our current ABR of 449.5 million from projects that are already committed, under construction, and capitalized, providing a degree of forward visibility into growth that is rare in our space. Our in-place portfolio continues to perform as designed. We ended the quarter approximately 100% occupied on a square footage basis with all but one of our 767 properties subject to a lease and, as of the date of our release, we had collected 99.9% of base rents due for the quarter.

We also remained active with dispositions, selling three properties during the quarter for gross proceeds of 12.5 million at a 6.6% capitalization rate. That brings our year-to-date total to 13 properties sold for gross proceeds of 86.7 million at a weighted average capitalization rate of 6.3% on tenanted properties. Project Triborough remains a key priority for us and we remain cautiously optimistic that we will achieve the 2026 goals we set out for this project at the beginning of the year. Ryan will provide a more detailed update shortly, including our progress towards this year’s major milestones.

On the capital front, we took a significant step this quarter completing our first public equity offering in four years, selling 12.65 million shares at $20.50 per share for estimated gross proceeds of approximately 259 million in connection with forward sale agreements. Together with approximately 167 million of forward sales under our ATM program at a weighted average gross price of $20 per share, we now have approximately 409 million of expected net proceeds from unsettled forward equity.

That capital positions us to fund our committed pipeline regardless of the ongoing volatility in the capital markets. Our approach has not changed: we will remain disciplined and opportunistic across all of our capital sources and we will continue to match fund our investments. Kevin will take you through the details of our balance sheet and funding plan in a moment. Based on our year-to-date performance and the visibility our build-to-suit pipeline provides, we are reaffirming our full year 2026 AFFO per share guidance of $1.55 to $1.57 with a midpoint of $1.56 representing nearly 5% earnings growth over 2025, and we are raising the ranges for both investments and dispositions. The momentum we are carrying into the fourth quarter and 2027 is the product of years of disciplined execution, deliberate portfolio construction, and a build-to-suit platform and differentiated growth strategy that is delivering at scale.

I am excited about what we have in front of us and happy to hand the call over to Ryan and Kevin who will each walk you through more of what is driving our confidence.

Ryan Albano (President and Chief Operating Officer)

Thank you, John, and good morning, everyone. This quarter showed our platform working at scale. We started $326 million of new build-to-suit developments, stabilized another $96 million, and continued to advance our redevelopment projects and Project Triborough. Let me walk you through where the pipeline stands today, how our in-place portfolio is performing, our redevelopment activity, and then provide an update on Project Triborough, starting with the pipeline.

As of today, our in-process build-to-suit investments now total approximately $456 million across seven projects, roughly 83% of which are industrial. The pipeline carries a weighted average estimated cash yield of 8%, a weighted average straight-line yield of 10.4%, supported by a weighted average lease term of 14.8 years and annual rent escalations of 2.7%. These are tenant-driven, mission-critical developments, structured from the outset to mitigate the risks that typically accompany ground-up development.

The six projects we stabilized this quarter, two industrial and four retail, are now contributing to ABR, and several more are expected to follow close behind. Our Southwire facility in Bremen, Georgia, a $115 million, 1.2 million square foot project, also reached stabilization this month, and our Academy Sports project in Magnolia, Texas, is targeted for November. Turning to our in-place portfolio, occupancy was approximately 100% on a square footage basis at quarter end. Third quarter same-store rental revenue grew 0.7% year over year. Contractual rent increases contributed 1.9% of growth across our same-store portfolio, including 2.1% for industrial. The headline number was held back by approximately $1.2 million of prior-year rent from two industrial properties that are now under redevelopment. Excluding those two properties, same-store growth would have been approximately 1.9%, in line with our year-to-date growth.

We have had strong execution year to date on both 2026 and 2027 lease renewals, achieving a 111% recapture rate. As we look ahead to 2027, our track record gives us confidence in both managing upcoming expirations and finding opportunities to create value through our redevelopment efforts. Redevelopment continues to be a differentiated source of value creation. Our first project, the conversion of a functionally obsolete office asset in the Chicago MSA into approximately 156,000 square feet of industrial space, is progressing. Total estimated project investment is approximately $17.9 million, of which approximately $3.7 million has been invested to date. The property carried original ABR of approximately $1.4 million, and we expect stabilized ABR of approximately $2.7 million, with substantial completion targeted during Q2 of 2027.

We are in active conversations with multiple prospective tenants who are potentially interested in this property. Our second project is our Hoffman Estates, Illinois property, which we moved into redevelopment at the start of the third quarter after evaluating releasing the property, a vacant sale, and several redevelopment scenarios prior to the lease term ending. We estimate a total investment of approximately $28.4 million, including the property’s remaining basis, and plan to repurpose the existing structure.

Target stabilization is anticipated for Q3 2028, with estimated stabilized ABR of approximately $3.3 million, in line with the original property ABR while significantly reducing the office component of the building square footage and meaningfully improving the quality of the building and overall value. Now turning to Project Triborough. As a reminder, this is a large site in northeastern Pennsylvania, more than 550 acres of land with a committed 1 gigawatt power supply. We have approximately $154 million invested in the project as of September 30th. As you all have heard many times before, we did not underwrite Project Triborough as a single-outcome investment, and each of the three distinct paths create real value for shareholders: monetizing the land in the near term, building a hyperscale data center campus, or building four large-box industrial buildings.

We have continued to invest in this opportunity while creating value and maintaining optionality for all paths forward. On site work, we continue to progress horizontal activity that is common to both an industrial and a data center development, and the first of four building pads is nearly ready for vertical construction. Various stages of horizontal work continue across the remaining land. On power, we continue coordination efforts with PPL and are in the process of finalizing our ESA and CSA. Our on-site substation design and engineering continues to progress, and timelines remain intact for the initial power delivery anticipated during the first half of 2028.

On zoning, we have continued to engage in constructive dialogue with the borough to advance the project under consideration and address the concerns of the borough’s residents in all cases. We expect clarity on zoning, power, and tenant demand this year, which supports our target of deciding among our three paths by year end. We remain very excited about the value creation opportunity that Triborough represents and look forward to communicating our progress in the near term.

With that, I’ll turn the call over.

Kevin Fennell (Chief Financial Officer)

Thank you, Ryan. During the quarter, we generated adjusted funds from operations of $77.8 million, or $0.39 per share, representing a 5.4% increase over the third quarter of 2025. Results benefited from same-store rent growth, recent investment activity, and from build-to-suits reaching stabilization. General and administrative expenses were in line with expectations, with Core G&A of $7.4 million, trending towards the low end of our full-year guidance of $30 to $31 million.

With respect to the balance sheet, we ended the quarter with total debt of $2.9 billion and pro forma net leverage of 5.4 times, down from 5.9 times last quarter, reflecting the forward equity we raised that we intend to settle alongside rent commencements in future quarters. Between the August offering that John already highlighted and our ATM activity, our total outstanding expected net proceeds from unsettled forward sale agreements were approximately $409 million as of September 30th.

On our last call, we also discussed our new $300 million senior unsecured delayed draw term loan, and we have drawn $100 million to date. Additionally, with $428.8 million available on our revolving credit facility at quarter end, we have over $1 billion of in-place liquidity available to fund the $337 million of remaining estimated investment in our build-to-suit projects as well as additional opportunities. Looking ahead, we will continue to assess all potential sources of funding, managing around a pro forma leverage target of six times.

Last week, our Board of Directors increased our quarterly dividend by 1% to 29.5 cents per share, payable to holders of record as of December 31, 2026, on or before January 15, 2027. Now turning to guidance. Given our year-to-date performance and the visibility from our build-to-suit pipeline, we are reaffirming our full-year 2026 AFFO guidance range of $1.55 to $1.57 per diluted share. This guidance is based on investments of $700 to $800 million, revised higher from $600 to $800 million, dispositions of $150 to $200 million, revised higher from $100 to $150 million, and no change to total Core G&A expenses of between $30 and $31 million.

Given our portfolio performance to date, we are also reducing our bad debt assumption to 25 basis points. As always, it is worth reminding everyone that our per-share results for the year are sensitive to the timing, amount, and mix of investment and disposition activity, as well as any capital markets activities that may occur during the year. Our guidance now includes less than half a penny per share of estimated dilution from approximately 350,000 to 600,000 weighted average shares related to our outstanding forward equity under the treasury stock method.

Please reference last night’s earnings release and supplemental for additional details, and we will now open the call up for questions.

OPERATOR

We will now begin the question-and-answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking the question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Eric Borden with BMO Capital Markets.

Your line is now open. Please go ahead.

Eric Borden (Analyst at BMO Capital Markets)

Great, thanks for taking my question. The first question is just on Triborough. You know, it’s encouraging that you’re still working towards a decision by year end, but as you sit here today, which of the remaining items is most important to determining that path forward, whether it be obtaining the power agreements or getting a tenant commitment? Thank you.

John Morano (Chief Executive Officer)

Thanks, Eric. It continues to move forward. We’ve had really good, as Ryan said, constructive dialogue with the borough, trying to make sure that we’re going about this the right way and responding to local resident concerns and providing sort of the best possible, sort of mutually beneficial answer for this moving forward. I think, you know, you’ve heard us say all year that there’s three things here. There’s zoning, there’s power, and there’s the tenant.

And I think, in terms of order of priority, they fall in that order. You know, we can’t have the conversation around power or the conversation around the tenant unless we know for sure that we’ve got the data center zoning squared away. So that’s where a lot of our attention has been. That’s not to say that we haven’t continued to work constructively with PPL as they think about their transmission distribution lines. The construction of the substations is going to be on the property, the ESA and CSA, as Ryan had said, and that we have not continued to have good sort of preliminary dialogue with potential tenants. But of course, the tenants are waiting for that zoning to be taken care of. So most important thing for us is to have the zoning squared away, and our expectation is that that should happen by the end of the year, and then we can move forward with the other two pieces in short order thereafter.

Eric Borden (Analyst at BMO Capital Markets)

Great, thank you. And then maybe just switching gears a little bit to looking ahead to 2027. I understand that you’re not providing guidance, but the rent commencement schedule gives us a helpful starting point. But how should we think about the main offsets between your embedded rent growth and the AFFO per share growth? Understand that interest expense is a large contributor, but curious if there’s any other offsetting factors there? Thank you.

Kevin Fennell (Chief Financial Officer)

No, Eric, it’s Kevin. I think you’ve got them pretty well targeted. You know, a variable that seemingly changes every day, certainly every week, is the interest rate environment. And so, you know, that’s one we’ll get sharper on as we cross the calendar here. But you’ve got the right ones to be focused on.

OPERATOR

Your next question comes from the line of Anthony Palone with JP Morgan. Your line is now open. Please go ahead.

Anthony Palone (Analyst at JP Morgan)

Yeah, thanks. Good morning. I’d like to start with just cap rates and yields, both for your pipeline of developments and what you’re seeing on the acquisition side, and whether you can comment as to what the adjustments so far have looked like, or where you think things need to be for you to greenlight a new project.

John Morano (Chief Executive Officer)

In the last 90 days in terms of interest rates and overall market and transaction activity, we’re seeing what everyone would expect. There’s a bit of a slowdown, there’s a flight to quality. We, as you know, are not participating in a meaningful way in the heavily marketed deal flow that’s out there. What we are seeing is sort of expectations for, you know, good solid deals are probably up 25 to 50 basis points. Deals that may have priced and executed previously that are, you know, more highly levered, PE-backed.

In a lot of cases, there’s no bids, they’re not trading. So that’s why for us, as I said during my remarks, you know, our strategy is specifically designed for an environment like this, you know, as sort of the volatility that the transaction market is experiencing. We’re still looking down at an in-place build-to-suit pipeline of more than $400 million that has really attractive yields on it, both upfront initial cash yields as well as straight-line yields.

We continue to see good opportunity in the build-to-suit space and we’re working towards executing on a handful of new ones that we hope to be able to do in the next couple of quarters to continue filling out that ladder of build-to-suits going into the end of 27 and through 2028. So we think our strategy is well designed for this. We’re still seeing good opportunities for value and we think the way that we have built this strategy with the focus on the long-term accretive growth of those build-to-suits and then filling it in with relationship-based direct off-market opportunities on the acquisition side, the more traditional acquisition side, is going to be a winning formula going into 2027.

Yeah. So I may actually just start with sort of how we’re thinking about what we have in place right now from a dry powder standpoint. We’ve got 500 million or more of dry powder in hand right now that we can deploy into good attractive accretive investments with an in-place cost of capital based off of the work that Kevin had done this year in the equity and debt capital markets in the low to mid-sixes. So we’ve got dry powder that we can deploy and have it be accretive to earnings.

And we don’t have to be thinking too strongly about the dispositions like we did in 2023, 2024 when we were working through our portfolio repositioning. That being said, we are doing more. I mean, as you saw, we increased our disposition guidance for the year. That is both a combination of incremental assets that Mike Caruso and his team have been working on, thinking about selling, finding good opportunities to move them along, and then also sort of the traditional risk mitigation type stuff that we would do. Built into that is a bit more of a chunkier one. We are contemplating a sale of our transitional capital investment in our Sunset Hills retail center.

So that is a big piece of why we increased the guidance for the year. We’ll be able to, if we execute on that, we’ll be able to redeploy that into the existing pipeline as well as sort of pair that up with the capital that we’ve got from a dry powder standpoint. So just want to emphasize first and foremost like we’ve got plenty of dry powder that’s at a great cost of capital for us to redeploy accretively into the investments that we’re seeing, particularly our build-to-suit pipeline.

And then we have the flexibility to go out and drive more through our disposition strategy. Which, you know, it was real nice when the sun was shining on us for a couple of months there over the summer. But we’ve been controlling our own destiny through sales and other activities to provide our funding for the last four years. So this isn’t nothing new for us.

OPERATOR

Your next question comes from the line of J. Kornreich with Cantor Fitzgerald. Your line is now open. Please go ahead.

J. Kornreich (Analyst at Cantor Fitzgerald)

Hey, good morning. I wanted to ask about the Colorado development. Has there been, or within that, about the potential for the second building on the site? Have there been discussions with the tenants that have progressed since the original announcement or any visibility into that potential second building materializing?

John Morano (Chief Executive Officer)

Yes, we’ve continued to have conversations with that tenant about sort of Colorado 2.0 and doing the next one. No decision’s been made. You know, they, as I’ve said to investors for a while now, I think, you know, they continue to be in a place where they want to make sure that that project’s going to go well. We are providing the, you know, the vertical construction, the power shell construction. We’re not doing the MEP work; that’s going to be on the tenant.

And so the tenant also has substantial work that they need to be focusing on and thinking about. So it’s a combination not only of making sure that our side of the project executes well—and I can tell you it is right now—we actually started going vertical last week. The site photos are pretty interesting to see that project move along at a much faster clip given the prefabricated construction that’s at play there versus some of the other tilt-wall pour construction that we’ve been seeing in some of our other build-to-suit.

So it’s been super interesting for us. But I think that’s probably a 2027 decision at some point for that tenant and we’re cautiously optimistic that they’ll move forward with it.

J. Kornreich (Analyst at Cantor Fitzgerald)

Okay, appreciate that. And then just in terms of the amount of unsettled forward equity and thinking about the timing of when you settle that, should we expect that to be more of a match funding approach with the completion of developments or a more ratable approach as you’re providing capital along the process of developments?

Kevin Fennell (Chief Financial Officer)

Match funding along completion is a more reasonable assumption. I’d say sort of mid-quarter convention around that is probably pretty reasonable.

J. Kornreich (Analyst at Cantor Fitzgerald)

Okay, thank you. I’ll hold it there.

OPERATOR

Your next question comes from the line of Caitlin Burroughs with Goldman Sachs. Your line is now open. Please go ahead.

Caitlin Burroughs (Analyst at Goldman Sachs)

Hi, good morning. Maybe just on the build-to-suit pipeline of future deals, I realize that the cadence of those announcements can be lumpy, but I guess the last two now are in August. So I was just wondering if interest rate volatility has impacted that in-process discussion. And when you think of the customer and why they’re working with you, I imagine it’s because they want to grow their business. So have their own plans changed and how sensitive are they to shifts in your required returns?

John Morano (Chief Executive Officer)

It’s a little bit of both. I think we are seeing some situations where the tenants are taking a little bit more time to think through their decision. So that’s not a surprise given the shift change in interest rates and how they’re thinking about financing alternatives relative to the build-to-suit and the cost and all those things. So it’s not surprising. The conversion timeline on build-to-suits is always long. So, you know, we’re never banking on those things moving at a very fast clip.

And then on the flip side, you know, our financing equation changed as well dramatically in the last 90 days. And so we went back and had some, you know, difficult conversations with some potential deals to make sure that we were getting the appropriate pricing relative to the way that we’re thinking about our in-place cost of capital and opportunity cost and all those things. And so, you know, there are a handful of deals that we decided not to pursue any further because it just wasn’t going to work and we couldn’t get to a place where it made sense.

All that being said, the pipeline is still robust. We are still seeing good opportunities. There’s lots of things that we’re excited about and hope to have some announcements in the near term to put out there as long as we can find a way for both sides to get comfortable with making sure that the economics continue to work in a fairly changing, volatile world.

Caitlin Burroughs (Analyst at Goldman Sachs)

Got it. Okay. And then just I saw it looked like a couple developments actually stabilized earlier in the third quarter. So congrats on that, I guess. Wondering if there’s anything specific to call out on what drove it and if it could be repeatable. But also as we think of the full-year guidance, you also mentioned that you lowered bad debt. So wondering if there was any offsetting factors that we should consider in terms of why the AFFO guidance was not moved.

Kevin Fennell (Chief Financial Officer)

I think on that timing piece, Caitlin, it’s sort of project specific. You’ve seen us be more or less plus or minus 45 to 60 days from our original estimates. We do our best to tune those in as we get closer to completion. I don’t know if there’s anything thematic to call it on that piece and on the guide, you know, the treasury stock piece of this equation was it’s less than half a penny, but when you’re talking about a guidance range of one to three pennies, it’s certainly a contributor to sort of holding the line on the range.

OPERATOR

Your next question comes from the line of Upal Rana with Key. Your line is now open. Please go ahead.

Upal Rana (Analyst at KeyBanc Capital Markets)

Great. Thank you for taking the question. You know, Kevin, you have some debt maturities approaching and some existing swaps rolling off. You know, how are you weighing refinancing early, you know, extending hedges or retaining floating rate exposure there? You know, and what kind of increase in the all-in borrowing cost should we anticipate to underwrite in our models?

Kevin Fennell (Chief Financial Officer)

Yeah, look, I think the name of the game on that front has been the opportunistic. You saw us last year go in September. You know, we’re always evaluating longer and fixed. Naturally in this environment we’re staying shorter. I think our floating rate exposure is probably bouncing between 20 to 30% of total debt and that’s probably not a long-term target. And so, you know, with the swaps rolling as well, there’s definitely the incremental exposure, sort of total headwinds.

You know, that’s sort of a future decision. I think the maturities we have, we have control of. We have the delayed-draw term loan to handle them. We have a very supportive bank group on the back end of the year if we needed to think about that one differently. But, you know, the opportunistic piece for us is still in play thinking about longer and fixed. So, you know, seven to 10 year options at a, call it, 110 over to 125 over as the marginal debt cost is not an unreasonable assumption.

But in the very near term I would say staying shorter and floating is probably a clearer answer.

Upal Rana (Analyst at KeyBanc Capital Markets)

Okay, all right, that’s helpful. And maybe on Triborough, you know, I’m sure you’ve had plenty of conversations with potential tenants. Is there anything you can share on some of the conversations you are having? You know, is there anything particular they’re looking for or asking for as it relates to the property or lease or anything that they’re concerned about from the executive order that it’s requiring.

John Morano (Chief Executive Officer)

Conversations have been constructive. You know, I would continue to characterize them as very preliminary. You know, people don’t want to spend a huge amount of time digging into all the details and negotiating a lease until they know that it actually can be a data center. So that’s why we’re focused on getting the zoning done first and foremost. And as I said, we continue to be cautiously optimistic about that for this year. But you know, the thing that we have heard and we continue to see is that demand is not dropping. You know, we are continuing to hear from tenants that they have real demand for these types of projects and they’re looking for these types of assets. One of the things that has positioned us, we think, and we hope to be in a much better position than others, is that we have continued to pursue the horizontal site level work on this.

So in terms of being able to sort of hit the gear a little bit harder to shift it from the work that we’ve done today to starting construction on the substations, the initial buildings that would be a part of phase one and getting to delivered power sometime in 2028, you know, we think positions this asset incredibly well relative to the demand that we are hearing continues to exist and the interest that we’re seeing from tenants on a preliminary basis.

OPERATOR

Your next question comes from the line of Linda Tsai with Truist Securities. Your line is now open. Please go ahead.

Linda Tsai (Analyst at Truist Securities)

Hi. Thanks for taking my question. Versus 90 days ago, has the general line of thinking with respect to the ideal outcome for Project Triborough changed given the shift in your cost of capital?

John Morano (Chief Executive Officer)

Yeah, I mean, ideal outcome in terms of the. You heard from Ryan. We continue to think about this as having a really strong backstop with the industrial build-to-suit that we initially underwrote this for. So if, you know, things don’t move forward the way that we hope that they will or expect them to, we can always pivot back to, you know, 4 million square foot industrial facilities. And there’s been, you know, continued interest from industrial build-to-suit in that market.

So we feel good about the backstop. And then as you’ve heard us say for the last year, you know, if it is something that can move forward as a data center, you know, we’re looking at either selling it or, you know, continuing to move forward with it as a power shell construction. I think the clarity that we’ve had over the last 90 days is really in terms of if it does move forward as a data center, there’s really two paths. We’re either selling it or we are going to find a private capital solution to fund it.

You know, the idea that there might be public equity that we can raise around this off our balance sheet to be able to fund this, I think that’s kind of off the table at this point, both in terms of the size and in terms of what we’ve seen from the market in the last 90 days. When you move forward with a project that’s going to be in the multiple billions dollars on a project budget basis, you got to have some certainty around where that money is going to come from.

We don’t have a lot of confidence right now that we’d be able to do that from the public equity markets. So we’re either selling this project or we’re going to find a private capital solution for it.

Linda Tsai (Analyst at Truist Securities)

Are there a lot of interested parties from the private capital solution perspective?

John Morano (Chief Executive Officer)

Yeah, there is a huge amount of interest in continuing to fund these things that is coupled up with the continued huge amount of demand for projects like this. So I think that with projects that are looking at delivering in back half of 27 and into 2028 like you’re talking about, with the initial phase delivery on power for Project Triborough and similarly situated ones where they’ve done the work and the site level that Ryan and his team have been continuing to advance, there’s ample capital that’s out there looking to be deployed into projects just like this.

OPERATOR

Your next question comes from the line of Michael Goldsmith with UBS. Your line is now open. Please go ahead.

Michael Goldsmith (Analyst at UBS)

Good morning. Thanks a lot for taking my questions. You lowered the full year bad debt assumption again to 25 basis points. But you also had this $2.9 million net write-off of accrued rental income this quarter. Can you walk us through what drove that write-off, whether it was concentrated with one tenant and whether there’s any accrued rent exposure associated with that tenant? Thanks.

Kevin Fennell (Chief Financial Officer)

Yeah, those two things are actually unrelated. The accounting around that rental income write-off is more about a situation where some small industrial assets, we’re working with a tenant to move out by the end of next year. And so the original lease term there was 11 years. This is simply a function of shortening that lease term. And we’ll work through them, little to no impact this year, next year around that event. And so those are sort of two separate occasions.

Michael Goldsmith (Analyst at UBS)

Got it. Thanks for that. And then you mentioned 111% recapture rate on the 26 and 27 renewals completed year to date. You still have a 7.1% ABR scheduled to expire next year. So, you know, as you start to approach that, is that the right recapture rate that we should expect next year? You know, how have the negotiations been going so far? Thanks.

John Morano (Chief Executive Officer)

Negotiations are going well. You know, Mikey, you know, we start working on a lot of these lease rolls, you know, two to five years before we get to the end of the term. So we usually have a pretty decent idea of where those things are to go if we’re going to be releasing to a new tenant, you know, exercising an option, you know, the tenant exercising an option, having a vacant sale where we’re looking to redevelop or do something different. So the team was working on 2027, you know, as early as 24 and 25.

So we feel pretty good about where we think all these are going to head. I’d love to say that you should expect 111%, but I think if you look back historically, our low to sort of mid 102 to 104, 5% is really a bit more in line with reasonable expectations because often we’re going to be in a situation where the tenant is going to have the option to renew at 2% or 3% or whatever it is. And so if we can come to a better solution from there, that’s great. But they always have the fallback of just hitting their option and continuing to hold that sort of increasing from whatever the standard lease increases.

So 111% is great. And kudos to our team for being able to find some really great solutions and positive outcomes on our lease rolls for this year. And, you know, hopefully we continue to see opportunities to do that in some discrete situations in the future. But, you know, I think it’s more in that low 100% range that we should be setting expectations around.

Michael Goldsmith (Analyst at UBS)

Thank you very much. Good luck in the fourth quarter.

OPERATOR

Your next question comes from the line of Ryan Caviola with Green Street. Your line is now open. Please go ahead.

Ryan Caviola (Analyst at Green Street)

Thank you. And good morning, everyone. Maybe one on Broadstone’s appetite to do more data center developments in the future. Obviously, great news on, you know, great updates on Triborough today, but in general, it seems getting a data center development from start to finish today is a bit harder than it was at the start of the year. Does your team view it that way? And are the complexities associated with these offset by the attractive yields? Thanks.

John Morano (Chief Executive Officer)

Yeah, I mean, we’ve. Right now I think our appetite is really squarely around Colorado 2.0. We’d love to see that come through. We hope that’s something that we’ll see in 2027. We’ve got fantastic partners on Triborough in Sansone and Emergent and, you know, they of course are continuing to look at other opportunities around the country. Whether or not there’s a role for us to play, I think is up in the air. These are very large capital commitments.

They are very large projects. And so the ability for us to play a role will be very project dependent on any of those. But there’s nothing that we’re talking about right now that is material enough for us to be sort of talking about. But it really will be very project dependent and we’ll see where things go. But like I said, we got great partners. We’re very pleased with what we see in Colorado and what we’re working on with Triborough.

Ryan Caviola (Analyst at Green Street)

Got it. That’s helpful. And then with midterms next week, figured I’d throw in one on onshoring. I know we’ve talked on it before, but with trade and industrial policy still evolving, do you think onshoring tailwinds have played out how you expected this far into the current administration? And does next week’s outcome affect any of that? Thanks.

John Morano (Chief Executive Officer)

I think there’s certainly a political component to it. You know, we expected after sort of tariff day and some of the efforts by the administration to bring more manufacturing to the United States to drive some additional tailwinds for industrial. And I think that’s playing out. You know, I don’t know if it’s playing out to the same degree that maybe everyone expected at the same at the outset of this. But then I think beyond the political sort of component to that, there’s also sort of the tailwinds of the shifting views that a lot of the industrial and manufacturer folks have had coming out of COVID where they just knew that they needed to rethink their supply chains to make sure that they could continue to, you know, provide revenue for their businesses and not run into the problems that we’ve seen from sort of geopolitical issues or from sort of pandemic era style COVID supply chain issues.

So there’s both. I think the political tailwind that helps a little bit. And then I think there’s more of a secular market tailwind where people are looking at, you know, business, businesses are looking at their supply chains and wanting to make sure that they’re as resilient as possible here domestically and not having to rely as much on international shipping lanes.

Ryan Caviola (Analyst at Green Street)

Thanks. Appreciate the color.

OPERATOR

Your next question comes from the line of Ronald Camden with Morgan Stanley. Your line is now open. Please go ahead.

Ronald Camden (Analyst at Morgan Stanley)

Great. Just want to go back to the pipeline and the thinking of advanced manufacturing or data centers and so forth. One, I was just curious in terms of are there any sort of larger deals, larger conversations that are happening on that front? And then two, some comments on construction costs. I know you guys do hedge a lot of it, but we’ve heard steel, we’ve heard other stuff, but I’d love to hear some comments on construction costs or any parts or any shortages.

John Morano (Chief Executive Officer)

Yeah, so I think I would point back to my earlier answer on sort of the advanced tech and sort of data center stuff. You know, we’re kind of full up with what we’re working on right now. You know, we’re always open to new accretive opportunities in the future. But we’re very pleased with where we, you know, where we have Colorado and where we have Triborough. You know, there are some larger build-to-suits outside of that context that we’re continuing to look at and hopefully we’ll be able to land a few of them.

But you know, time will tell as we can work through that. On a construction cost basis, construction costs are certainly up, but that’s just provided an opportunity to make sure that we are pricing things appropriately and that rents are getting set at the right levels. You know, depending on if you’re talking about hard costs or overall project budgets, maybe we’re somewhere in the 10 to 15% increase at this point. And so that then as I said, just sort of necessitates a conversation around how, how are we thinking about pricing this, how are we thinking about rents, how are we thinking about residual values and cap rates on the front and back end of these things?

So it’s a dynamic place to be right now as it’s changing very quickly. And, you know, we’re making sure, you know, referring back to my comments earlier on sort of the pipeline itself that, you know, as our tenants are taking time to think through whether or not these projects are the right thing for them to do, we’re doing the same thing. You know, not every project is going to make sense. And so making sure that we are prudently allocating the capital that we have to the projects that we think are going to be the most accretive and earnings powerful in the future is where we’re spending our time and attention.

Yeah, we have been very selective for a long time. We will continue to be. There’s very little that we move on in terms of regular-way deal flow anymore. We always make sure that we can stay in touch with it, and we’re in contact with all the brokers and making sure that we understand what’s happening. If there’s ever a good opportunity that’s out there, we want to make sure that we’re a part of it. But our strategy is really focusing on these long-term, value-creating build-to-suits and then finding opportunities to find direct off‑marketed deals with our existing relationships, where we can deploy capital more accretively.

And if you’re looking at an environment where the cost of capital has changed a little bit, financing markets have changed a little bit depending on how banks are thinking about lending, what the brokers are seeing, what the appetite is for people to be able to deploy capital that are the other participants in the net lease market, maybe that shakes out a few direct deals for us if people are looking for surety of execution as opposed to having to work their way through a more heavily marketed process.

So we’re hopeful.

OPERATOR

Your next question comes from the line of Mitchell Germain with Citizens JMP. Your line is now open. Please go ahead. Your line is now open. Please go ahead. Your next question comes from the line of Michael Gorman with US Bancorp BTIG. Your line is now open. Please go ahead.

Michael Gorman (Analyst at US Bancorp BTIG)

Yeah, thanks. Good morning. Maybe just taking a different perspective on the Colorado project and Project Triborough. Obviously these are large developments, large projects, but maybe outside the capital cost, pretty quickly they scale from an income perspective. Right. So if my math is correct, kind of straight-line Colorado comes online at about 7% of NOI-ish. You sound optimistic about building two there. And then whatever the outcome is for Triborough, how do you think about exposure to this kind of new category of tech just from a portfolio management perspective as these two projects continue to move forward?

John Morano (Chief Executive Officer)

Yeah, great question. We spent a lot of time thinking about it because they are an outsized portion of the way that you would think about our tenant mix in a traditional way. You know, our Colorado tenant is going to be 6% or 7%, depending on how we think about our forward other build‑to‑suit and acquisition pipeline. Now, with the quality of the tenant that we have there, I’m quite happy to sit at 6% or 7%. If they want to execute on, you know, Colorado 2.0 or what have you and move it into the double digits, I’m also very happy to do that. But these are large projects, and I think we have to think a little bit differently with Triborough, and that maybe harkens back to my commentary around how we’re thinking about financing it. We can do Colorado and, if we end up being lucky enough to have Colorado 2.0 move forward, being in that 6% to 12% range is fine.

I’m not worried about it with that tenant and that project. Project Triborough is sort of its own thing. It’s a bit of a supernova. And as I said, based off of the way that we’re currently thinking about how you fund that project, we are either selling it and then taking those proceeds, delevering, and then redeploying into our core verticals, or we’re going to find a private capital joint venture solution for it. And at that point, in terms of tenant concentration, it will be far lower than what it would be if you’re thinking about it more on a headline, fully on‑balance‑sheet number.

Michael Gorman (Analyst at US Bancorp BTIG)

Got it. That’s helpful. And then maybe just pivoting to the other growth avenues, whether it’s revenue‑generating capex or maybe transitional capital or anything. What’s the financing environment like for your tenant base? I imagine they’re seeing some of the same volatility that you are. And is that opening up additional opportunities in some of those other growth avenues, whether it’s helping with expansion or capex?

John Morano (Chief Executive Officer)

Yeah, their cost of capital and their financing opportunities are changing sort of in step with the way that we’re thinking about it. There are places where, depending on are they pricing off the 10‑year, are they pricing off of SOFR, there’s been significant differences in the volatility there. The 10‑year, depending on the day, is up whatever, 60 or 80 basis points relative to the beginning of July. SOFR’s up, I don’t know, it was 20 the other day or something like that.

So depending on how you’re thinking about pricing these things, if you’re doing an ABS facility or doing something else, there are alternatives. But the build‑to‑suit structure, helping from a revenue‑generating capex with existing tenants because we already own the asset, continues to provide, in most instances, we think, an attractive alternative to anything else that’s going to be out there. And so we continue to have constructive conversations about deploying capital into all those potential verticals.

Michael Gorman (Analyst at US Bancorp BTIG)

Great, thanks for the time.

OPERATOR

Your final question comes from the line of Eric Borden with BMO Capital Markets. Your line is now open. Please go ahead.

Eric Borden (Analyst at BMO Capital Markets)

Great, thanks. For taking the follow‑up just on Project Triborough. With the first pad nearly ready, is there an opportunity to move forward with an industrial building on part of the site while preserving the ability to pursue a data center development on the balance, or would the site layout and infrastructure requirements make those paths mutually exclusive?

John Morano (Chief Executive Officer)

We would not pursue—if it moves forward and you have data center approvals from a zoning standpoint and you have the power and the interest—we wouldn’t move forward with an industrial site on it, because any of the hyperscale tenants that are looking at that project want all of it. They want all of it and then more. So we would not put industrial on it to start. The only way that we’re going to be putting industrial on those 550 acres is if we end up having to pivot towards the industrial.

But as I said, we’re cautiously optimistic that we’ll have this resolved by the end of the year, and so hopefully then we’re moving fairly quickly to the conversations on power and tenancy.

Eric Borden (Analyst at BMO Capital Markets)

Okay, thank you. And then just in the event that you do have to shift towards the industrial build pursuit or development, would that be on a spec basis, or would you like to have the tenant in hand before moving forward with that project?

John Morano (Chief Executive Officer)

We’d always love to have tenants in hand before moving forward, but given the demand that we know exists in northeastern Pennsylvania for this type of large‑format box, we’d be very comfortable continuing to move forward, including even going vertical on some of these assets if we needed to.

Eric Borden (Analyst at BMO Capital Markets)

All right, well, thank you for the time. Appreciate it. Thank you.

OPERATOR

There are no further questions at this time. I will now turn the call back to John Morano for closing remarks.

John Morano (Chief Executive Officer)

Thanks all for joining us today. And we’re looking forward to seeing many, if not all, of you in Atlanta at NAREIT in a few weeks. Enjoy the fall. Thanks.

OPERATOR

This concludes today’s call. Thank you for attending. You may now disconnect.

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