Broadstone Net Lease, Inc. 2026 Q3 Earnings Call

Please go ahead. 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 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 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.

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 of you 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 in approximately 544,000 sq ft 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.

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 Triboro 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-$1.57, with a midpoint of $1.56, representing nearly 5% earnings growth over 2025. We are raising the ranges for both investments and dispositions. The momentum we are carrying into the fourth quarter in 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.

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 Triboro. 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 Triboro. 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 sq ft project, also reached stabilization this month. 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.