Broadstone Net Lease, Inc. Q3 FY2026 earnings call

• Strategic Resilience: Management emphasized that their disciplined, selectivity-heavy strategy is well-suited for the current volatile capital markets, validating their long-term approach rather than disrupting it.
• Build-to-Suit Momentum: The firm started three new build-to-suit developments totaling $326 million and stabilized six others worth $95.3 million. The in-process pipeline stands at approximately $456 million, with expected incremental annualized base rent of $36 million coming online through 2027.
• Portfolio Performance: Occupancy remained near 100%, and rent collection stood at 99.9%. The company achieved a 111% recapture rate on lease renewals completed year-to-date.
• Capital Markets Activity: Broadstone returned to public equity markets after four years, completing a $259 million forward equity offering. Combined with ATM activity, they have approximately $409 million in unsettled forward equity proceeds available to fund the pipeline.
• Project Triborough Update: Progress continues on this 550-acre site in Pennsylvania. Zoning discussions with the local borough are ongoing and considered the primary priority. Power agreements with PPL and preliminary tenant dialogues are advancing, with a final decision on the development path (data center vs. industrial) targeted for year-end 2026.
• Redevelopment Initiatives: Two major redevelopment projects are underway: converting an obsolete office asset in Chicago to industrial space (targeting Q2 2027 stabilization) and repurposing a property in Hoffman Estates, Illinois (targeting Q3 2028 stabilization).

Broadstone Net Lease reported Adjusted Funds from Operations (AFFO) of $77.8 million, or $0.39 per diluted share, representing a 5.4% increase year-over-year. Same-store rental revenue grew by 0.7% annually, driven by contractual rent increases; excluding redevelopment-related rent deferrals, same-store growth was approximately 1.9%. The company maintained approximately 100% occupancy on a square footage basis across its portfolio.

• AFFO Guidance: Reaffirmed full-year 2026 AFFO per share guidance of $1.55 to $1.57 (midpoint $1.56), representing nearly 5% earnings growth over 2025.
• Investment Guidance: Increased the range for total investments to $700–$800 million, revised upward from the previous $600–$800 million range.
• Disposition Guidance: Increased the range for dispositions to $150–$200 million, revised upward from the previous $100–$150 million range.
• Expense Guidance: Maintained core General & Administrative (G&A) expense guidance between $30–$31 million.
• Bad Debt Assumption: Reduced the bad debt assumption to 25 basis points, reflecting strong portfolio performance.

• Macroeconomic Volatility: Interest rate fluctuations and capital market volatility impact deal pricing and execution timelines, potentially causing some prospective deals to be paused or cancelled.
• Construction Cost Inflation: Rising construction costs require careful evaluation of project economics to ensure accretive returns.
• Execution Risk on Large Projects: Major initiatives like Project Triborough carry significant complexity regarding zoning, power infrastructure, and tenant commitment, with decisions deferred until late 2026.
• Tenant Concentration: While manageable due to high-quality tenants, large single-site developments (like Colorado) create temporary concentration exposure that management monitors closely.

Q: Eric Borden (BMO) asked which factor is most critical for deciding Project Triborough's path by year-end.

A: John Marano stated zoning is the top priority because data center zoning must be secured before power or tenant conversations can proceed effectively. Once zoning is resolved, the team will finalize power agreements with PPL and engage deeper with potential tenants, aiming for a decision by year-end.

Q: Anthony Paolone (JPMorgan) asked if the change in the rate environment has impacted their disposition strategy, specifically regarding the UNFI asset.

A: John Marano explained that while they have sufficient 'dry powder' ($500M+) at favorable cost of capital to fund new investments, they are increasing disposition guidance ($150-$200M) partly due to a potential sale of a transitional capital investment (Sunset Hills Retail Center). This allows them to redeploy capital into the build-to-suit pipeline without relying solely on forced sales.

Q: Jay Kornreich (Cantor Fitzgerald) asked about the timing of settling unsettled forward equity relative to development completion.

A: Kevin Fennell indicated that match funding upon completion is the reasonable assumption, likely following a mid-quarter convention around the stabilization dates of the projects.

Q: Linda Tsai (Truist) asked if the ideal outcome for Project Triborough has changed given the shift in cost of capital.

A: John Marano clarified that while the industrial build-to-suit remains a strong backstop, a data center outcome would now likely involve selling the project or finding a private capital joint venture solution. Raising public equity for such a large, off-balance-sheet project is currently viewed as unfeasible due to market conditions.

Q: Michael Goldsmith (UBS) asked about the driver behind the $2.9 million net write-off of accrued rental income despite lowering the bad debt assumption.

A: Kevin Fennell explained the write-off was unrelated to credit deterioration but rather an accounting adjustment for a small industrial asset where the lease term is being shortened via a mutual move-out agreement with the tenant, resulting in little to no cash flow impact.