Broadstone Net Lease 2026 Q2 Earnings Call

Please go ahead. Thank you everyone for joining us today for Broadstone Net Lease's second quarter 2026 earnings call.

On today's call, you will hear prepared remarks from Chief Executive Officer, John Moragne, 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 defer 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 31st, 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 day of this call. With that, I'll turn the call over to John.

Thank you, Brent, and good morning, everyone. Second quarter was, in many respects, the quarter we have been building toward for the last few years, one that underscores the earnings power of our differentiated growth strategy and the strength of our portfolio. We advanced our committed build-to-suit platform through both existing and new relationships, raised our full year investment guidance by more than $100 million at the midpoint, lowered our bad debt assumption, which is a direct reflection of the sustained improvement in our portfolio performance, and are raising the midpoint of our full year AFFO per share guidance range to $1.56, representing nearly 5% earnings growth over 2025. Subsequent to quarter end, we announced the largest transaction in our history as a public company. Collectively, these results give us a lot of conviction as we enter the back half of the year and into 2027.

Before I walk through the quarter, I want to spend a moment on the news we announced on July 8th, because it is emblematic of everything we have been working toward over the last few years. Subsequent to quarter end, we entered into a joint venture to develop an advanced technology facility in Colorado for a Fortune 20 investment-grade company, adding an estimated $303 million to our committed build-to-suit pipeline. This is a landmark development with one of the most creditworthy tenants in the world, and upon rent commencement, this tenant is expected to become Broadstone's largest by ABR, and the investment is expected to be meaningfully accretive to both our 2027 and 2028 earnings. It is a powerful validation of the strategy we have built and the caliber of opportunities our team and our longstanding developer relationships continue to source.

The facility will be delivered as a powered shell with 100 megawatts of capacity. All of which is already committed to the site today under a 15-year triple net lease with two five-year extension options and 3% annual rent increases. The transaction generates a straight line yield of approximately 11.6% with initial cash yields that step up as power is delivered. Approximately 8.5% in year one, rising to approximately 9.7% in year two. Substantial completion and rent commencement are anticipated by March 2027. The joint venture owns and controls the land for the full campus, with a site designed to accommodate a second 100-megawatt powered shell building in which the tenant holds a right of first refusal. I would frame that second building as future optionality and not committed pipeline that we are including in our stated numbers today.

It is a real potential opportunity and is exactly the kind of embedded optionality that makes our build-to-suit strategy uniquely valuable. We are funding the project through our build-to-suit pipeline over the construction period, with approximately $233 million of estimated remaining investment. Turning to our broader investment activity. During the second quarter, we invested $91.5 million, comprised primarily of $77.3 million in build-to-suit developments and $13.5 million in transitional capital. With the addition of the Colorado development, our in-process build-to-suit pipeline now stands at approximately $645 million, providing a laddered, de-risked runway of high-quality developments scheduled to reach stabilization through 2027.

In total, from our build-to-suit pipeline alone, we expect approximately $17 million of incremental annualized base rent to come online during the third and fourth quarters of this year, with an additional $29 million coming online in the first half of 2027 as the Colorado development and other projects reach rent commencement. That is approximately $46 million of incremental ABR from committed in-process developments reaching stabilization between the third quarter of 2026 and the first half of 2027, equating to over 10% growth on our current in-place portfolio ABR. That is a degree of forward visibility into growth that is rare in our space. Turning to our in-place portfolio. It continues to perform exactly as designed with no significant concerns. We ended the quarter nearly fully occupied with all but one of our 766 properties subject to a lease and 99.9% of base rents collected.

We also remained active with dispositions, continuing to opportunistically recycle capital out of mature and non-core assets into the accretive growth-oriented opportunities our pipeline provides. We sold nine properties during the quarter for gross proceeds of $62 million at a 6.4% capitalization rate on tenanted properties. Subsequent to quarter end, we sold two additional properties For gross proceeds of $4.2 million, bringing our year-to-date total to 12 properties sold for gross proceeds of $78.3 million at a weighted average capitalization rate of 6.2% on tenanted properties.

I also want to briefly note that we continue to be incredibly excited about Project Triborough. We made meaningful progress this quarter on each of our three key work streams, including power, zoning, and leasing, and our conviction in the value this asset can create for shareholders continues to grow. Ryan will provide a more detailed update in a few moments. Based on the strength of our year-to-date performance, the accretive investment activity we have layered in, and the visibility that our build-to-suit pipeline provides into the back half of this year and into 2027, we are raising our full year 2026 guidance.

We now expect AFFO per share of $1.55 to $1.57, revised up from $1.53 to $1.57, with a midpoint of our guidance range moving to $1.56, representing nearly 5% earnings growth over 2025. This raise reflects both the durability of our in-place portfolio and our conviction in the pipeline we have assembled, which gives us a clearer line of sight into earnings growth than we have had in our history. On the capital side, the environment is more constructive for us than it has been at any point in the last few years. Our shares are trading at 52-week highs. Our cost of equity has improved materially. Our balance sheet is well-structured. Our pipeline of accretive investment opportunities is the deepest it has been since we became a public company.

That combination of a strong cost of capital alongside a high-quality, visible opportunity set is exactly the setup in which disciplined capital deployment can create the most value for shareholders. That said, our approach has not changed, and we will remain disciplined and opportunistic across all of our capital sources. During the quarter, we raised approximately $45.5 million of equity under our ATM program on a forward basis at a weighted average price of $20.77 per share. As I noted earlier, we continue to recycle capital through accretive dispositions with year-to-date gross proceeds of $78.3 million at a weighted average capitalization rate of 6.2%. Together, this balance of constructive equity capital and accretive dispositions has kept us well funded for the pipeline ahead while maintaining the financial discipline that has defined our approach over the last few years.

Kevin will take you through the details of our balance sheet and funding plan in a moment. The momentum we are carrying into the back half of this year is not accidental. It is the product of our differentiated growth strategy and years of disciplined execution, deliberate portfolio construction, and a unique build-to-suit platform that is now delivering at scale with meaningful contributions still ahead in 2027 and 2028. I'm 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.