Broadstone Net Lease Inc. Aktie

Hello, and welcome to Broadstone Net Lease's First Quarter 2026 Earnings Conference Call. My name is Emily, and I'll be your operator today. Please note that today's call is being recorded.

I will now turn the call over to Brent Maedl, Director of Corporate Finance and Investor Relations at Broadstone. Please go ahead.

Thank you, everyone, for joining us today for Broadstone Net Lease's First 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 3 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. Good morning, everyone. After a strong finish to 2025, we carried that momentum into the first quarter of 2026, delivering 5.6% AFFO growth year-over-year, continuing to execute on our investment strategy and driving strong operational outcomes across our in-place portfolio. We advanced our committed build-to-suit platform through both existing and new relationships, adding over $90 million in new development projects year-to-date, invested over $60 million in a compelling acquisition, realized no bad debt during the quarter and addressed nearly half of our 2026 lease maturities with a recapture rate of 119%, a strong start to the year.

Collectively, our results reflect the progress we have made executing on our core building blocks and underscore the strength of our high-quality mission-critical portfolio and the increasing visibility we are providing to long-term sustainable growth. In total, we deployed $171.9 million during the quarter, including $61.2 million in new property acquisitions, $99.4 million in build-to-suit developments and $10.4 million in incremental investments in existing transitional capital projects.

As previously announced earlier in the quarter, we added 2 additional build-to-suits, including a new state-of-the-art sub-same-day distribution center located in Sarasota, Florida for Amazon, sourced through an existing developer relationship. We also added a retail development for Academy Sports in Magnolia, Texas, a rapidly growing suburb of Houston that was directly sourced through the tenant and delivered in partnership with a new developer relationship.

Continuing our momentum, subsequent to quarter end and as we announced in our earnings release last night, we closed on the land and started funding a new presort battery recycling facility for Tesla that will be located approximately 3 miles from the Gigafactory in Austin, Texas.

Together, these 3 build-to-suit investments represent high-quality real estate paired with top-tier investment-grade quality tenants that blend to a first year initial cash cap rate of 7.2% with attractive straight-line yields of 8.3%, a weighted average lease term of 14 years and valuations on each asset that are likely at least 75 to 100 basis points below our development yields, further demonstrating the value creation of our build-to-suit strategy.

As anticipated, on April 1, the second of 2 maintenance repair and overhaul hangar for Sierra Nevada Corporation rent commenced, supporting its continued work with the U.S. Air Force replacing an aging fleet of Nightwatch planes. We are proud to be a part of this effort, and I couldn't be more pleased to have both projects reach stabilization on time and under our budgeted project investments, underscoring our team's ability to execute on our strategy and create value for our shareholders regardless of broader macroeconomic uncertainty and frequent market moving headlines.

With the completion of Sierra Nevada and the 3 new projects I just walked through, our build-to-suit pipeline remains in a strong position with approximately $382 million of high-quality developments scheduled to reach stabilization throughout 2026 and into 2027, providing visibility to over $28 million of new incremental ABR. Additionally, our opportunity set remains robust, driven largely by existing relationships, and Ryan will go into more detail on our active build-to-suit pipeline in a few moments.

During the quarter, we invested $61.2 million in a 60-acre campus, approximately 20 miles north of Boston, Massachusetts, tenanted by Charles River Laboratories, a leading global pharmaceutical and biotechnology contract research organization. The sale-leaseback investment includes a long-term 12-year net lease with initial cash rents of $1.5 million and annual rent increases of 3% and a short-term 1-year net lease with cash rents of $4 million for a blended 9% initial cash cap rate and 4 years of weighted average lease term.

We intend to redevelop approximately 48 acres of the 60-acre campus that are subject to the short-term lease in partnership with the Sansone Group as part of our growing build-to-suit development program. We think this transaction is yet another great example of creatively driving additional value.

Turning to Project Triboro. As I said during our last call, our goal for 2026 is to advance 3 key work streams related to a potential data center development, zoning, power and tenant identification. All 3 of these work streams continue to advance, and our goals and time lines for each have not changed. To date, we have invested approximately $106 million in the project through our transitional capital platform, maintaining meaningful optionality as we evaluate the best path forward. The highest and best use for this site remains a hyperscale data center campus, and our backup option for a multi-building industrial build-to-suit development also remains intact.

We continue to be immensely excited by this opportunity, and by the end of the year, we expect we will be able to decide our best path forward for this project, whether that be a powered land sale, a commitment to stay involved on a powered shell development or a decision to pursue multi-building industrial development and communicate the same to our investors, and I'm confident in our ability to deliver. Ryan will provide a more detailed update in his remarks, and you can expect we will provide relevant updates as we have them.

Finally, to cap off a strong quarter of results and execution, I also want to highlight an important milestone for Broadstone Net Lease, our inclusion in the S&P 600 Index. We view our inclusion as providing incremental support for our improving cost of equity capital and believe it will help expand our investor base over time with the increased amount of daily liquidity it will help provide. More broadly, we've been encouraged by improving market sentiment around REITs and the progress we've seen in our equity multiple. As our cost of equity improves, it expands our opportunity set and enhances our ability to fund growth in a disciplined and accretive manner.

As you saw in our earnings release last night, we raised $71 million of equity under our ATM during the quarter at a weighted average price of $19.13, bringing total gross proceeds to approximately $82.5 million on a forward basis at a weighted average price of $19.02. Going forward, we expect issuances to remain measured and opportunistic as we evaluate our cost of capital alongside our investment opportunities.

With that, I will hand the call over to Ryan and Kevin to take you through some of these topics in greater detail.

Thank you, John, and thank you all for joining us today. As John highlighted, the first quarter clearly demonstrated the effectiveness of our strategy and the strength of our team and portfolio. In today's environment, we believe creativity and structuring is just as critical as sourcing. Our focus is on transactions where thoughtful structuring can materially enhance outcomes, driving higher yields, embedding growth and protecting downside through multiple exit pathways.

A strong example is the $61.2 million investment we completed this quarter with Charles River Laboratories in Wilmington, Massachusetts. The transaction involves the acquisition of a 60-acre campus, approximately 20 miles north of Boston, delivering both a long-term accretive sale leaseback and a strategically structured short-term investment with meaningful future value potential. The 2 leases together generate approximately $5.5 million of first year cash rent, representing a blended initial cash cap rate of 9%.

As John noted, the first lease is a 12-year net lease with initial annual rent of $1.5 million and 3% annual rent escalations, nearly 100 basis points above our current and increasing weighted average rent growth. The second lease is a short-term lease with a term of 1 year covering approximately 48 acres of the campus. This shorter lease duration was intentional, allowing us to preserve near-term cash flow while maintaining flexibility to unlock value through redevelopment.

Specifically, the site has the potential to support up to 440,000 buildable square feet of industrial development. The campus benefits from a prime infill location with access to a population of more than 4 million people within a 30-mile radius, along with strong connectivity to major transportation corridors and labor pools, factors we believe underpin sustained long-term demand.

Importantly, we did not underwrite this as a single outcome investment. The 48-acre parcel provides flexibility for multiple build-to-suit opportunities, effectively extending our pipeline of committed development projects. While we actively pursue this upside, we are supported by a strong underlying land value and the optionality it affords, reinforcing our conviction in this investment. Overall, this transaction highlights our ability to leverage relationships and apply a creative solutions-oriented approach to structuring investments to deliver attractive initial yields while positioning us to generate additional long-term value.

As a broader update on our development pipeline, following the early and under budget delivery of the 2 MRO facilities for SNC, we currently have 11 in-process developments, representing approximately $382 million of total projected investments. These projects are expected to generate strong initial cash yields of 7.3% and weighted average straight-line yields of 8.4% supported by a weighted average lease term of 12.9 years and annual rent escalations of 2.5%. Importantly, these tenant-driven developments are structured to mitigate traditional development risks, including construction timing and cost pressures.

As we've discussed, build-to-suit development remains a core pillar of our differentiated strategy and a key driver of embedded growth visibility. We aim to consistently maintain an active, committed build-to-suit pipeline in the $350 million to $500 million range, and we continue to see a robust set of opportunities to support that run rate. Currently, we are actively evaluating approximately $1.3 billion of build-to-suit opportunities across both existing and new relationships, reinforcing our ability to drive visible long-term growth.

In the stabilized transaction market, we continue to see steady deal flow, including several larger portfolio opportunities, particularly within industrial. That said, we remain disciplined. In many cases, seller pricing expectations, particularly around cap rates, do not align with our view of the underlying risk profile, and we will not pursue volume at the expense of quality. Dispositions remain an important component of our capital allocation strategy. On a routine basis, we use dispositions to refine the portfolio and proactively manage credit, lease rollover and sector exposure.

Opportunistically, when market pricing allows us to recycle capital on an accretive basis, we will act. This was reflected in our $12 million disposition during the quarter at a 5.6% cap rate on an industrial asset with 7 years of remaining lease term. Subsequent to quarter end, we completed the sale of 3 additional assets for total gross proceeds of $54.8 million, including 2 opportunistic dispositions totaling $50.4 million at a weighted average cap rate of 6.3% as well as the sale of a small vacant asset as part of our ongoing portfolio management.

Turning to our in-place portfolio. Same-store performance remains strong with 2.8% year-over-year growth driven by contractual rent increases and successful re-leasing activity in prior periods. At the start of the year, we had 22 leases scheduled to expire in 2026. We have already addressed half of those leases, achieving a weighted average recapture rate of 119% and an average new lease term of 6 years on extended leases. For the remaining 11 leases, representing approximately only 2% of ABR, we are well underway in our leasing efforts and expect continued positive outcomes.

Finally, with respect to our watchlist, activity this quarter was relatively uneventful, reflecting the strength of our portfolio and proactive asset management efforts in recent years. As noted last quarter, Gardner-White Furniture assumed all 6 locations previously occupied by American Signature as part of its bankruptcy process. Since then, we have executed a new 10-year master lease across all 6 sites, further enhancing what was already a strong outcome.

Now shifting our focus to Project Triboro and building on John's earlier update. It may be helpful to frame where we are in the overall development life cycle. Over the past several months, our efforts have been focused on advancing the site's foundational elements while simultaneously progressing key work streams across power, zoning and leasing. This coordinated approach is intended to derisk the project, preserve flexibility around ultimate use and position us to respond efficiently as milestones are achieved and market opportunities continue to evolve.

We are actively advancing the site to a pad-ready condition, including the installation of erosion and sediment controls, clearing and grubbing, mine remediation and mass grading. This also involves completing the core civil infrastructure required to create developable pads, such as storm water management systems, internal access roads and underground utilities, universal site work that must be completed regardless of whether the site is ultimately developed as a hyperscale data center campus or as multiple industrial buildings. We are approaching the site work in a deliberate phased manner, carefully sequencing activities to align with the project's multiphase nature and preserve maximum flexibility as we pursue value creation for our shareholders.

On the power side, this continues to be one of the defining attributes of the site. Importantly, the 1 gigawatt power commitment is supported by existing generation capacity, and we are not reliant on future power generation build-out to establish that supply. Our current focus is on coordinating the infrastructure required to transmit and deliver the power to the site as well as developing the on-site infrastructure necessary to receive it as it becomes available.

In this regard, PPL plans to construct a new substation and switchyard along with approximately 8 miles of new transmission lines. These upgrades are intended to support broader load growth and new customer demand, including Project Triboro while also enhancing overall system reliability.

PPL currently anticipates commencing construction in the summer of 2027 with completion targeted for the summer of 2030. At the site level, we plan to develop a dedicated substation to receive the delivered power, which we currently anticipate the first phase of energization consisting of 300 megawatts to commence between Q4 of 2027 and Q1 of 2028, with the additional 700 megawatts to follow thereafter. We remain in close and ongoing coordination with PPL and are actively working through the required electric and construction service agreements necessary to advance Project Triboro.

With respect to zoning, in recent months, Olyphant Borough has considered amending its zoning ordinance to expressly allow data centers in the CM-2 District, where Project Triboro is located. We understand Pennsylvanian municipalities must accommodate all lawful land uses somewhere within their boundaries, including data centers, but may regulate them through standards such as siting rules, setbacks and required studies and reports, which are typical for real estate development.

As drafted, Project Triboro aligns with the framework contemplated by the proposed amendment. At its most recent meeting, Borough Council chose not to adopt the amendment as written and instead started a process giving it up to 180 days to address data centers in the ordinance. We will continue working with the council on the amendment during this period. To protect our rights in the meantime, we filed a zoning permit application last week and formally asserted that the proposed data center campus is permitted by right under the current ordinance and may proceed as planned. Accordingly, despite heightened attention on data center development, we remain confident in our path forward and do not expect any impact to our anticipated 2026 time line.

Finally, with respect to leasing efforts, we are currently engaged in active discussions with multiple hyperscale users that have expressed strong interest in Project Triboro. We look forward to providing updates as these discussions progress and as we gain greater clarity on potential structures and timing.

As John has consistently stated, our objective is to have clarity on the optimal path for Project Triboro by the end of 2026 based on the progress achieved relative to several milestones, including zoning, power and leasing, and remain focused on maximizing shareholder value while preserving optionality.

With that, I will now turn the call over to Kevin.

Thank you, Ryan. During the quarter, we generated adjusted funds from operations of $76.9 million or $0.38 per share, representing a 5.6% increase over Q1 of 2025. Results benefited from strong same-store rent growth of 2.8% and from recent investment activity and build-to-suits reaching stabilization.

The quarter's results also notably benefited from no loss rent realized during the quarter and lower nonreimbursable property expenses. G&A remains well controlled with core expenses totaling $7.8 million during the first quarter. While this represents an increase of 5.4% year-over-year, this change was largely impacted by onetime or timing-related expenses, including employer tax expense for stock vesting and professional services. We remain well on track to achieve our G&A guidance.

With respect to the balance sheet, we ended the quarter with pro forma leverage of 5.8x, unchanged quarter-over-quarter. At quarter end, we had approximately $82.5 million of unsettled equity and nearly $600 million available on our revolver. With limited debt maturities through the first half of 2027, we maintain sufficient financial flexibility as we look ahead.

Last week, our Board of Directors elected to maintain our $0.2925 dividend per share payable to holders of record as of June 30, 2026, on or before July 15. Lastly, we are maintaining our 2026 per share guidance range of $1.53 to $1.57 with no changes to our key assumptions.

Despite no bad debt in the first quarter, we are also maintaining our full year assumption of 75 basis points of lost rent within our 2026 guidance and plan to revisit this assumption throughout the year. It's always 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. Please reference last night's earnings release for additional details. And we will now open the call up for questions.

[Operator Instructions] Our first question today comes from Anthony Paolone with JPMorgan.

Just on Project Triboro, you mentioned that there will be some infrastructure improvements there that are done irrespective of what the ultimate use of the land is. Are you all responsible for that? And just wondering like what that capital commitment might be in the meantime?

Sure. This is Ryan. Yes, when we're talking about that universal site work, that's site work and infrastructure improvement that we would be looking at regardless of whether we were going to proceed with data center usage or industrial usage. The infrastructure that would relate specifically to the data center itself, I think the majority of that cost is being pushed off at this point until we're a little further along in our decision-making process.

Okay. But it sounds like then the rest of those costs are fairly small? Or should we expect like some bigger checks to be written in the near term?

Sure. I'd say total at the moment, probably for this year, less than $15 million.

Okay. Got it. And then just my other one relates to the Boston acquisition. Can you talk a bit more around just conviction level that you'll find some tenants there to take on that risk, Sansone's role in all of that? And also just as you step back and do like a transaction like that, Triboro, for instance, just your appetite to take on what I guess is sort of like land risk for future type of build-to-suits?

Yes. This is John. I think it's a great example of the way that our strategy can unlock value by creatively structuring solutions for our developer partners and clients. This isn't the first time that we've done something that's a little more creatively structured with Sansone. We did it with Sunset Hills. We're doing it with Triboro. We have it with Charles River, and we have other things in the hopper that we're considering with them. They continue to grow as a fantastic partner for us with our business as we're helping them grow theirs.

This project was particularly attractive to us because there were certain things that needed to be solved for the overall transaction to move forward for Charles River. They needed a long-term sale leaseback for the assets that they were looking to double down on and continue to invest in. And then they had some assets that they were looking to move on, but they needed a transition period for.

This is a premier location in the Northern Boston market right off of I-93 in that I-93, I-95 corridor, strong industrial area. We've underwritten this, as you heard from Ryan, the 440,000 square foot of industrial build. It's probably 4 buildings, somewhere in the, give or take, 100,000 square foot. You're talking shallow bay industrial, which is perfect for that space.

Our cost basis is slightly below market. So we feel like if we did need to get out of this, there's going to be interest in the site where we're going to be able to make some money on the back end, whether we develop it or not. But our intention is to develop this. We think there is a good opportunity for build-to-suit in this area. We've already had interest from one tenant for a build-to-suit on site. The way we've penciled this out is we're looking at yields probably on yield to cost in that low to mid 7 cap range.

And on a stabilized basis, you're going to have values in these assets in the mid to high 5 cap range. So this potentially is a homerun for us. So we're very excited about it. But we also make sure that as we underwrote it, we found good optionality.

So to answer your question about appetite for more, if we can find deals like this, we've got all sorts of appetite for it, because this is the place where our strategy really shows the value of the build-to-suit, focusing on real estate operation and investment and not just doing the commodity net lease trade that we have seen often in other places.

Our next question comes from Eric Borden with BMO.

Just kind of going back to Project Triboro and around the council's decision to take 180 days to address the data centers in the ordinance. Just curious what needs to happen there to get that cleared and you're able to kind of move forward with data center development? And is there any risk around the council to kind of push that 180-day review even further out?

Yes. So the 180 days is up to. Our understanding is that the council wants to move this forward as quickly as possible, although it was prudent for them to take the 180 days. I think it's important to go back to sort of what Ryan walked everyone through in terms of how municipal and zoning regs work in Pennsylvania. Pennsylvania does not allow a prohibition of any type of use within any municipality. You can certainly set the standards, as Ryan walked you through, for setbacks and for studies and things like that, but there is nothing that can be absolutely prohibited.

We had already worked with the council on the amendment that was in front of them for approval in earlier part of April. Project Triboro fits squarely within what they were considering. We have all the confidence in the world that, that's where this will land at the end. But to make sure that we are pursuing all potential opportunities to maximize the value and to push the time line, we have submitted for a conditional approval at the same time as we are going to work with them and hope that the council will be able to push the amendment process a little bit further.

There are folks in addition to us who have interest in that site and the zoning ordinance being pushed forward. So there's other remedies that are being sought by other folks that have interest in land in that particular park besides us. So it does not change our time line. As you heard Ryan say, by the end of 2026, which is what I've been saying for a long time, we're looking to have zoning, power and tenant interest solidified so we can make the right decision to maximize value. And sometimes real estate development work can be a little messy, zoning in particular.

So none of this is out of the ordinary. None of this is a problem. We'll work through it over time, and we expect to stay on the time line that we've announced without any hiccups.

Great. And then you were active on the ATM this quarter. How should we be thinking about equity issuance for the rest of the year? And what conditions would lead you to accelerate or pause the issuance here? Just obviously, share price is a big factor, but just capital and so on and so forth.

Yes, share price is a big factor for sure. I think opportunistic is the right word to use. It is entirely dependent on both share price, which is far more constructive than it was. We've been very excited to see the increase in the returns that we've been providing on the share price, certainly, including the S&P 600 Index, which was a wonderful surprise. But then it's also opportunistic related to our opportunity set in the pipeline with the types of deals that we can see, if we find other Charles River type deals or opportunities to deploy capital in an accretive manner. And as you know, our focus is on direct relationship-based deals like Charles River and some of these others. Put those 2 things together and there may be more opportunity to do this in the future.

Our next question comes from Jay Kornreich with Cantor Fitzgerald.

I guess, first off, just following up on that last question. How do you assess kind of just the opportunity set for regular way acquisitions currently? I guess how is the pipeline? Are you seeing any changes in cap rates? And do you see an opportunity to maybe push what's already embedded in guidance throughout the year? Or just what are your thoughts on that?

Yes. We're certainly seeing increased transaction activity, more portfolio deals, more industrial portfolio deals. So right down the middle of the fairway for things that we're looking at. We're having an increasing number of conversations with our relationships, so tenants, sponsors, things like that and finding good opportunities. We're being really disciplined about where we deploy capital. There wasn't a ton that we needed this year to hit our guidance range from a growth standpoint.

We are allocating a lot towards the build-to-suit program. As everyone knows, that's where the focus is for us for the long-term derisked attractive value-creating growth into the future. But there are incremental deals that are out there that are interesting to us. We're spending time on them. And just like last year, we're starting at a place where our guidance and our assumptions around this are relatively conservative in terms of what we think we can do. And as the opportunity set starts to form and as we have a better view on what the longer-term cost of capital is going to be for us with the better and more constructive stock price, hopefully there's an opportunity for us to do more and potentially push that guidance towards the back half of the year.

Okay. I appreciate that. And then I guess moving to the core part of the company. With the industrial build-to-suits, you've announced the target of $350 million to $500 million of new deals annually and also mentioned evaluating really a robust $1.3 billion of new development opportunities. So can you maybe just comment what's driving such an increase in volume being evaluated? Is it really just the Broadstone name brand getting stronger in the development space? And I guess within that, is it safe to say you feel pretty good about hitting that target in 2026?

Yes. We feel very good about hitting that target. We've got a lot of opportunities we're evaluating right now. I think it's a handful of things. One, I got to give all the credit to the team. Ryan and Will Garner, Sam DeLemos, Ryan Rahaeuser are the folks that are really driving the build-to-suit development process for us, are hitting the ground and really making a lot of phone calls, reaching out to their contacts, finding new relationships, really honing in on existing relationships, getting views of entire pipelines of deal flow to see what was out there.

And then it's also that we're getting some calls. People -- our name is getting out there. People have heard what we've been able to do. The referral network is great. You do a good job for one developer and you provide a solid outcome, they're more likely to recommend you to somebody who is in a different geographic area or operates in a different type of retail or industrial space.

So the team is working really hard to build out this pipeline. And then we're also getting a little bit lucky as the name gets out there and the space expands. And people are starting to call us as well. So all of those things are putting us in a great spot to execute on the strategy and to hit the numbers that we plan.

Our next question comes from Caitlin Burrows with Goldman Sachs.

I guess as we think of the incremental build-to-suit announcement and what it means for 2027 completions, I guess could you give some, I don't know, parameters or range of how many quarters would you say is average for a project to get completed? Obviously, we could look at what you have in the disclosure right now. But is it 4? Is it more? I'm just wondering if incremental '26 announcements that are larger than, say, like $5 million or something at this point could open in the first half of '27? Or would it be later in '27?

Yes. Great question. We usually work on an assumption of -- like the average in the pipeline is about 15 months. Certainly are ones that come inside of that and others that take a little bit more. So call it 12 to 18, generally speaking. So there's a handful of things that could come in, in the first half of 2027. But at this point, a lot of our attention has been sort of filling out the pipeline on that second half of '27. So we're having that consistent rent commencement from the build-to-suit pipeline over time. There's a handful of things that are near completion right now that should add to that. And then the stuff that's a little bit higher up in the pipeline would likely be more into that second half of '27.

Got it. Okay. And then maybe just on the tenant side, last quarter, you guys had brought up the Claire's location and how you were evaluating to either sell or re-tenant that and then also taking another look at the Red Lobster exposure. So wondering if you have any update on either of those?

Yes, not really. Claire's, we're still working through the re-leasing and the sale process. No announcements to make on that front. We still have time to work through it. So we still feel good there. And then on Red Lobster, we haven't had any material change in sort of the position. We continue to monitor them and we continue to look for opportunities for us to reduce that exposure over time while finding accretive ways to dispose those assets. But no material updates on either one.

Our next question comes from Ronald Kamdem with Morgan Stanley.

This is [ Jenny ] on for Ron. Just a follow-up on the tenant health. So the bad debt guide, do you still hold 75 basis points of the year given there's no loss rent in Q1?

Yes. So no loss rent in Q1, 100% rent collection, which we feel great about. It's still early. We always have to remind ourselves that it's still the first half of the year. And so we've always sort of taken the position that we'll reevaluate our bad debt assumption at least halfway through the year, so at the end of -- after Q2. So yes, we're still holding it at 75%, but that's just our more conservative stance that we have taken historically on -- we said at the beginning of the year, and we leave it until at least after Q2.

Got it. Just a follow-up on the Charles River Laboratory. How should we think about the tenant health there given the lab has challenging demand environment? It seems like they have an impairment recognized in Q4. Just yes, maybe talk a little bit more how you get comfortable with this type of tenant? And on the credit side, how do you feel about it?

Yes. I mean we feel pretty good there. I mean we do internal risk ratings, of course. But if you kind of look at their agency rating, S&P has got them at BB+, Moody's beat up, Ba1. They've got $4 billion plus of revenue. They're at 2.8x on a leverage basis, and they got fixed charge coverage in 3.5. So we feel very good. The longer term piece here -- obviously, the short-term piece is the majority of the rents in the near term, the $4 million over the course of next year. But the other piece of this is fairly small given the overall size of Charles River. It's $1.5 million a year on a 12-year lease. So we feel very comfortable with the credit relative to our exposure.

Our next question comes from Michael Goldsmith with UBS.

As you think about the dispositions in 2026, I think you did one in the quarter, you got 3 subsequent to the quarter. So what characteristics most often trigger a sale here? Is it asset age? Is it tenant credit? Is it cap rate arbitrage or just kind of strategic noncore exposure?

Yes. I think it comes on both sides of the barbell for us. There's the risk mitigation type sales, which hit a number of things you talked about in terms of whether it's tenant exposure, real estate fundamentals, underlying credit, maybe there was a change of control that we didn't particularly love. All sorts of stuff that could put something noncore, as you mentioned, into the bucket of -- one side of the barbell that we're just looking to reduce that exposure over time.

And then as Ryan highlighted in his comments, we're also very happy to do some cap rate arbitrage. And if there's an opportunistic sale that we can have, then we're more than willing to do it. We've got a couple of the deals that we've done this year that were the result of unsolicited offers to sell at fantastic cap rates. And so part of our job is to make sure that we're accretively recycling our real estate. And so when we can do that and we can put that back to work in a fashion that's going to help us grow our earnings, we're very pleased to do it.

Got it. And then you had that exposure to American Signature, and that's been streamlined with Gardner-White taking over those boxes. But just can you talk a little bit about how much exposure you have to the home furnishing space? How comfortable your level with this exposure? Are there plans to reduce this exposure over time?

Yes. I mean -- so we don't have a huge exposure. I want to say it's been like a 2-ish percent range, maybe mid-2. Just a couple of handful of tenants in there. We certainly would be open to reducing that exposure over time. I mean if you look at consumer data over the last couple of quarters, home furnishings has been roughly flat in terms of sale and foot traffic. So it's not exactly growing, but it's not shrinking the same way that it was for a period of time once the sort of post-COVID boom fell off and they all started to experience a little bit of difficulty.

But we're very pleased with the resolution for American Signature with Gardner-White. We think they've got a great team in place and a great business model that they're going to be pushing through with our stores in addition to a handful of additional stores that they got from the American Signature bankruptcy. So we feel like we're in a great spot with that new master lease and 10-year term, but it doesn't mean that we wouldn't look to reduce that over time depending on where we see demographic trends and sales trends and things going.

The next question comes from Upal Rana with KeyBanc Capital Markets.

Kevin, on equity issuances, you sold $3.7 million during the quarter. I know this topic comes up often, but just any updated thoughts there or likelihood to issue more or not would be helpful.

Yes, sure. I think John addressed it for the most part a little bit ago. But it's all relative to the opportunity set. We are certainly working with a better cost of capital in the equity slice today versus in the last 3 years, frankly. And so it's opened up the door on the margin, but we're still not looking to pour on in a big way. And so we get a question very often as an expansion of this, which is, should we be expecting some type of balance sheet equitization and large overnight. And the answer is still no. And so measured, opportunistic is still the thing.

Okay. Great. That was helpful. And then maybe could you give us an update on the total addressable market for the build-to-suit side? It just seems demand for development has increased broadly recently. So just wondering how that pool has changed? Or competition or any comments on pricing would be helpful.

Yes. I mean the total addressable market for us is continuing to increase. Obviously, there's sort of the nationwide market, but then we're thinking more in terms of what we are seeing and what we have an opportunity for, and that's been growing quarter-over-quarter since we initiated the program. There is increased development activity. I think people are continuing to look for opportunities to bring onshore, nearshore to increase the sophistication of their facilities. We've seen it with some of the work that we've done as people are getting out of older dated facilities and looking to put in narrow racking, robotics, all the things that they can do with a build-to-suit that they can't necessarily do with just walking into a blank slate on a spec.

And then I think even you saw with today's GDP numbers that even though the consumer is a little bit more muted than people would like, you are seeing a huge increase in investment on the business side with 10.4% growth on a period-over-period basis. So people are looking to put money to work. They're looking to get into the right types of buildings for their business. They're looking to make investments into the equipment that's going to help them grow their businesses as well. So we see a huge amount of opportunity here. And we're very glad that we got into this space early when we did and have started building the reputation that's allowed us to execute the way that we have.

The next question comes from Ryan Caviola with Green Street Advisors.

In this new world of AI, how do you view your portfolio's durability against any secular changes caused by technological advancements? Does that view differ between the retail side of the portfolio and the industrial side and maybe even that small office side that's still in the portfolio?

Yes. If there's anything maybe on the office side because of the utilization that people are going to be reducing headcount or looking at different arrangements. But we think that there's a lot of resiliency built into our industries and our asset classes in industrial and in the retail and restaurant category. People are still going to want to go out to eat. They're still going to want to go out to shop. They're still going to be looking for those products to be delivered, for the food to be manufactured, all of the things that our real estate provides and supports. So those industries don't concern us. But office, I think there's broader secular trends and AI is only going to potentially accelerate those.

I appreciate that. And then just one quick one on the disposition front. Just seeing if there's a pricing read-through here on the one asset you sold during the quarter. I just noticed there's a touch to mid-5s cap rate with a sub-10 lease term, which is kind of interesting. So just any color there.

Yes, a great opportunistic sale for us. That was an unsolicited offer to sell. We will always look for places where we've got an asset valued at one place and somebody else think it's inside it or the cap rate is inside of that, so they're willing to pay more for it. And if we can make that arbitrage work, we will. We're not looking at going around selling our best trophy assets. These are places where we've seen good opportunities for assets that we kind of put in the middle of the pack for us, but somebody else sees it as a gem. And if that's the case, we're happy to sell it to them at a mid-5 cap.

The next question comes from John Kim with BMO Capital Markets.

This quarter, you had 119% recapture rate and that follows what you did last quarter of 110%. Is that mainly driven by industrial leasing? And secondly, do you have visibility on what your current mark-to-market is of your portfolio, just to see how returning this could be going forward?

Yes, mostly driven by industrial. A lot of times, the retail assets that are going to roll are going to have a fixed rent bump as the way they go through, but we've got a little bit more of ability to mark-to-market on the industrial side. We aren't looking necessarily at the assets that have 10-plus years of term left on a mark-to-market basis. I mean, that's anyone's guess at this point what's going to be rent in those periods of time.

We do look at it, though, for the next 2 to 3 to 4 years. We've got our re-leasing pretty much under control already for 2026. We have a little bit of a heftier volume for 2027, but we started working on those last year. And so we have a view on the mark-to-market and then also looking out into 2028 and 2029. Generally speaking, without putting a number on it, we feel very good that on an aggregate basis we're in a good spot from a same-store growth standpoint for the assets that are going to re-lease moving forward.

But 119%, is that something that could occur again? Or is this sort of an aberration in this quarter?

It depends. I mean we've had good results. I mean in the last couple of years, we've looked at like 107%, 108%. So 119% is a little bit higher than what we've seen in the last year or so. Happy to continue to push for those if we can get it, but that's maybe a little bit more on the high watermark side.

Okay. And on Project Triboro, it was a very thorough update, which is helpful. I think at your Investor Day, you talked about hyperscaler interest in acquiring that site from you at a nice premium. Just given the process could be elongated and maybe it could be -- end up getting pretty political, is that an option that's still on the table for you or something that you're considering?

Yes. So our conversations with hyperscalers have primarily been in the zone of leasing. So leasing the sites to them. But powered land sale and us exiting the opportunity still is on the table. There continues to be interest from all sorts of institutional buyers that would like to get access to it. So the hyperscaler conversation has been much more in the vein of leasing. And to the extent that we believe the right value maximization opportunity for us to sell, there's plenty of folks that are interested in the site.

The next question comes from Michael Gorman with BTIG.

This is Zach Light on for Michael Gorman. Just building on the first question asked and going back to the Boston transaction in the quarter. It's a unique deal relative to typical acquisitions in the past. Given the implications and additional infrastructure spend and BTS development component mentioned in the remarks, was this a broadly marketed process or relationship source transaction? And would this type of partial structured sale leaseback with embedded development be something that you're actively seeking to replicate or more of an opportunistic one-off in the quarter?

So a direct deal all the way. This was not broadly marketed. This was one that we partnered with Sansone to find a solution for them and for Charles River to make this work in an attractive way for us. These are the types of deals that we think that we absolutely excel at because there's a lot of other folks that would look at something like this and just say no and they would walk away because it would involve a little bit more work and it's a little bit more outside of, as I said, sort of the commodity net lease business that prevails in a lot of other places.

So we absolutely would look for more opportunities like this. We think we've built a good reputation on someone who can creatively structure deals that work for everybody but still provide a great way for us to grow our earnings and find ways to deploy capital to interesting places that can provide value in the future.

So this isn't something where you necessarily can find opportunities like this just on the listings that are out there from brokers. These are relationship-based type deals and these are the types of deals that we believe are going to come through our network. And we hope to be able to find more, because if this plays out the way that we've underwritten and the way that we believe, it's going to be a heck of a success for Broadstone.

That's great. And then just a follow-up, switching over to the portfolio. We noticed industrial exposure continues to climb. So as industrial concentration approaches that 2/3 range in the portfolio, how are you thinking about the appropriate ceiling for industrial exposure? And does the mix shift within industrial reflect a specific strategy? Or is this simply the composition of available deal flow?

I'll take the second part first. I think it's a little bit more about deal flow and some of the relationships that we have. Often, our partners will specialize in one particular type of thing versus another. And so you're just going to naturally see more of a particular industrial type than something else if you're working with the same developer or the same sponsor or seller, what have you. We saw that with food processing as we grew that over the last few years. We're working with sponsors that did a lot of work in food processing. So it naturally became a bigger percentage.

In terms of the mix, we have been 70-plus percent allocated towards from an investment dollar standpoint in industrial since like 2018, 2019. So not really any difference in the overall strategy the way that we're allocating capital and deploying it. So I would expect over time that you should see our industrial exposure grow into that 65% to 75% as we work our way down on office and the remaining buckets of clinical health care and things. You should also expect retail and restaurants to end up in that like 25%, 35%. That would be the mix that I would expect in the near to medium term for Broadstone going forward.

We have no further questions. And so I'll turn the call back over to John Moragne for closing remarks.

Great. Thanks, everybody, for the time today. We've enjoyed walking you through our strategy and what we've been working on. We're getting right into the heat of conference season starting next week and all the way through Nareit at the beginning of June. So we look forward to seeing many of you in person. Hope you all have a great rest of your day. Thank you.

Thank you, everyone, for joining us today. This concludes our call, and you may now disconnect your lines.

Hello, and welcome to Broadstone Net Lease's Fourth Quarter 2025 Earnings Conference Call. My name is Emily, and I'll be your operator today. Please note that today's call is being recorded.

I will now turn the call over to Brent Maedl, Director of Corporate Finance and Investor Relations at Broadstone. Please go ahead.

Thank you, everyone, for joining us today for Broadstone Net Lease's Fourth Quarter 2 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 Funnell. All 3 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 I dive into our results and outlook, I want to briefly reflect on what we accomplished in 2025 because I believe it was an important year in Broadstone's history.

2025 was pivotal in terms of proving out the promise of this company and our strategy. and was crucial in terms of establishing a strong foundation for B&L's future. We successfully executed our Investor Day and used it to reinforce who we are as a company and why we believe our differentiated strategy is built to generate consistent and attractive long-term shareholder value.

Delivering on our strategic objectives last year required significant effort across the entire organization, and I couldn't be prouder of what our team accomplished. As a reminder, our strategy continues to be driven by our 3 core building blocks: First, solid in-place portfolio performance, anchored by our top-tier contractual rent escalations, same-store growth potential and revenue-generating CapEx; second and most importantly, a laddered pipeline of committed build-to-suit development projects that provide attractive yields, value creation and derisk future AFFO per share growth; and third, stabilized acquisitions, including sale leasebacks and lease assumptions particularly those that are directly sourced and relationship-based that supplement and enhance our built-in growth profile.

In 2025, we made meaningful progress across each of these building blocks. And as we look ahead, we believe our build-to-suit strategy will provide meaningful embedded long-term growth and value creation. With high-quality mission-critical facilities with attractive economics and high-quality tenants, our portfolio and pipeline provide a powerful driver of durable growth that is unique within the net lease space. With our differentiated strategy established and our team firing on all cylinders, we delivered a strong year on all fronts, including generating $1.49 of AFFO per share, representing 4.2% growth year-over-year.

We also maintained solid portfolio performance ending the year 99% leased and 99.8% of rents collected. We also incrementally disposed of some of our remaining legacy clinical health care assets, and we continue to tightly manage expenses and grow cash flows. On the investment side, we deployed $748.4 million, including $429.9 million in new property acquisitions, $209.3 million in build-to-suit developments, $100.8 million in transitional capital and $8.3 million in revenue-generating capital expenditures. The new property acquisitions and revenue-generating capital expenditures had a weighted average initial cash capitalization rate of 7%, a weighted average remaining lease term of 14.2 years and weighted average annual rent increases of 2.6%, providing contractual growth that is 50 basis points above our portfolio average.

On a weighted average basis, these investments also carried a straight-line yield of 8.4%, reflecting attractive growth-oriented returns while extending the duration and embedded rent growth profile of our portfolio. Alongside our investments, we also successfully navigated multiple headline tenant situations throughout the year, and I want to give our team all the credit here.

These situations require a lot of work, and our organization has tangible tested experience in managing them to completion. Our team brings a creative and solutions-oriented mindset to find outcomes that work for us and our tenants. It's the ability to find mutually beneficial solutions to difficult problems that helps us build long-term relationships with our tenants and clients. which you hear us talk about often. Despite the headlines, the actual financial impact from tenant situations last year was limited with bad debt for 2025, amounting to only 31 basis points. That outcome underscores the strength and reliance of our portfolio as well as our team's ability to manage through these events and should serve as a reminder that while credit events are bound ahead.

In most cases, the underlying impact on the business is minimal and does not necessitate the outsized swings in our share price that we have experienced historically. A recent example of this disconnect was when American Signature filed for bankruptcy over a weekend in November last year, a filing that was not communicated to us in advance. In response, our share price declined over 5%, representing approximately $150 million of market capitalization despite American Signature representing only approximately 1% of our total ABR. As you saw in our earnings release last night, through the court supervised process, Gartner White Furniture has assumed all 6 of our American Signature leases at current rents effective as of February 6.

We realized no bad debt throughout the process, and we now have a strong retail furniture operator in all 6 of our locations with what we expect will eventually be a new and structurally improved long-term lease. Overall portfolio performance remains solid, and our credit and underwriting platform, paired with our proactive relationship-based focus allows us to stay close to our tenants and anticipate issues early.

We've also been intentional about communicating potential tenant concerns as transparently and as early as possible. With that backdrop, we want to provide an update on what we are seeing across our Red Lobster sites. The tenants post-bankruptcy operating performance has been mixed. With its turnaround strategy positively impacting some sites, while others have experienced weaker traffic and profitability. We are monitoring this closely and remain in active dialogue with Red Lobster while we continuously assess each of our sites to understand our highest value pathways forward, which could simply mean maintaining the status quo.

Given the continued underperformance at some of our sites, however, we are in the process of evaluating potential mutually beneficial 4 sale or 4 lease paths that could reduce our exposure to the brand over time. We remain highly confident in our ability to navigate our exposure to Red Lobster as we have proven with this and other distressed tenants time and time again.

Turning to 2026. And as we previously outlined in connection with our Investor Day, we are reiterating our 2026 AFFO guidance of $1.53 to $1.50 per share or 4% at the midpoint. Kevin will walk you through our key guidance assumptions in his remarks. But I think it's worth reminding everyone that the success we had in 2025 and establishing our build-to-suit pipeline provides for a very strong foundation for 2026.

The incremental investment activity required to achieve our 2026 guidance targets is relatively insignificant. And our primary focus on our investment committee conversations centers around what we are seeing that will deliver in 2027. We remain in a great position to start the year with approximately $350 million of high-quality build-to-suit developments scheduled to reach stabilization during 2026, adding nearly $26 million of incremental ABR.

Additionally, we have approximately $142 million of additional build-to-suit developments that are under executed LOIs consistent with what was previously provided in conjunction with our Investor Day. We are also excited about some opportunities to continue to add to our transitional capital bucket. As many of you have been focused on since our third quarter earnings call and from our Investor Day presentation, our transitional capital investment in Project Triboro is top of mind and we have now invested approximately $100 million in the project through December 31.

As I've said previously, we are very excited about this project, and we intend to use 2026 to evaluate all available paths for this investment opportunity, while staying actively involved in the development work to preserve optionality and ensure we maximize value for shareholders. Ryan will provide more details on Project Triboro in a few moments.

Finally, while we have been encouraged by improving market sentiment around REITs and some improvement in our equity multiple, we remain frustrated with our relative valuation. We continue to focus on disciplined execution to close the remaining gap versus our peer average and expand our ability to fund growth opportunities over time. As you saw in our earnings release last night, we raised a small amount of equity under our ATM since November. In total, on a forward basis, we have raised gross proceeds of approximately $43 million. While the market setup has been incrementally constructive, we do not expect to raise significant amounts of additional equity at these levels. So we will remain opportunistic in our decision-making. As we have made clear over the last 3 years, we will control our own destiny and look to opportunistic dispositions and alternative opportunities for capital when we do not believe the equity markets are properly valuing our shares.

That being said, we know that publicly traded net lease REITs like B&L work best when they are in the virtuous cycle and raising accretive equity capital to be redeployed into attractive investments, and we look forward to the day when we're able to consistently raise equity in that manner again. As I said at the beginning of my remarks, I couldn't be prouder of what our team accomplished in 2025, and I look forward to sharing with you all that we will accomplish in 2026.

With that, I will hand the call over to Ryan and Kevin to take you through some of these themes in greater detail.

Thank you, John, and thank you all for joining us today. As John mentioned, 2025 marked a pivotal year for the strategic road map implemented following the executive team transition in early 2023. Our differentiated approach in core building blocks are firmly established, supporting robust growth in 2025 and enabling visibility into embedded growth through 2027, well ahead of most net lease companies. .

Over the course of the year, we had approximately $4.5 million of ABR commenced from build-to-suit projects, featuring weighted average annual rent escalations of 2.9% and a weighted average lease term of 15 years, further strengthening our robust portfolio metrics. Furthermore, our UNFI build-to-suit project, which began generating rent in late 2024, contributed a full year of ABR during 2025.

At present, we have 9 in-process developments, representing an estimated total project investment of $345 million. These projects offer strong estimated initial cash yield of 7.4% and estimated weighted average straight-line yield of 8.6%, driven by weighted average lease term and annual rent escalations of 12.9 years and 2.7%, respectively.

Notable, these tenant-driven projects are structured to mitigate traditional development risks such as construction timing and cost pressures. Of equal importance, our pipeline building methodology serves as a strategic differentiator. We primarily source opportunities through existing and direct relationships facilitating repeat transactions and expanding access to new investment opportunities. Our development partners value certainty of execution, expertise, creativity and flexibility while assisting them in securing investment opportunities and advancing their businesses, setting us apart in the market. Aligned with our Investor Day announcement on December 2, we maintain approximately $142 million in advanced stage projects under executed LOIs, sustaining a pipeline that supports our target of $350 million to $500 million in committed build-to-suit projects for the foreseeable future.

In 2025, while focusing on developing our initial build-to-suit pipeline, we also pursued stabilized acquisitions primarily through direct sourcing efforts. We invested approximately $430 million in new property acquisitions, achieving initial cash yields of 7% and strong weighted average rent escalations of 2.6%, resulting in straight-line yield of 8.4%.

Regarding the transaction market, we observe healthy activity, including some notable portfolio opportunities, especially within the industrial property segment. However, we remain disciplined. In many cases, pricing levels do not align with our targeted risk-adjusted returns, and we refrain from prioritizing volume over quality. We continue to exercise caution regarding tenant credit, considering broader economic conditions and sector-specific constraints. Consequently, we prioritize opportunities involving strong relationships and investment structures that protect downside risk, whether via our build-to-suit platform, revenue-generating capital expenditures or stabilized property acquisitions.

Turning to dispositions. We sold 28 properties in 2025, yielding gross proceeds of $96 million at an average cash cap rate of 7.3% on tenanted properties. These transactions were primarily focused on routine portfolio sales and risk mitigation efforts, including the sale of Stanislaus Surgical, which further reduced our exposure to nonreimbursable expenses associated with clinical assets.

Now focusing on our in-place portfolio. We completed 19 lease rollovers during the year, addressing over 1% of the total portfolio ABR. This resulted in a weighted average recapture rate of 110% at an average new lease term exceeding 7 years. For 2026, 3.3% of our in-place ABR is scheduled for rollover with negotiations already underway and positive outcomes anticipated. Regarding our watch list, our team successfully managed key tenant events in 2025, including positive outcomes with At Home, Claire's and Zips.

Following year-end, Gartner White assumed all 6 of our sites through the court-approved American Signature bankruptcy process. As a strong Michigan-based furniture retailer, they were already familiar with these locations and a logical candidate to operate these sites into the future. Additionally, in January, Claire's exercised its lease termination right effective June 30. We are collaborating with Claire's to facilitate a seamless transition and optimize our leasing and disposition efforts, having already attracted interest in the property.

As John indicated, we are increasingly cautious regarding our exposure to Red Lobster, given the slower-than-anticipated return to historical foot traffic patterns. Red Lobster currently represents approximately 1.3% of total ABR across 18 sites under a single master lease that runs through 2042, offering meaningful protections as we move forward. We are evaluating strategies to gradually reduce exposure over time, retaining flexibility to pursue optimal outcomes while continuing to monitor the company's operating performance. On a forward-looking note, I'm excited to update you on Project Triboro, our primary transitional capital investment. Triboro is a fully entitled industrial development site in Northeastern Pennsylvania distinguished by its strategic location, a highly attractive market demand backdrop, coupled with limited near-term supply and committed power capacity totaling 1 gigawatt with supporting infrastructure.

These attributes have generated considerable interest from several market participants and multiple paths to value creation. Consistent with John's remarks, we are focused on maintaining optionality for Project Triboro as we progress through 2026. Today, given the substantial power commitment, the primary path we are evaluating is a future hyperscale data center campus with potential transaction structures ranging from powered land to powered shell configurations. Importantly, we have a clearly established floor. If the data center path does not produce the optimal outcome, the site is already fully entitled and designed to accommodate multiple industrial build-to-suit developments, ensuring attractive alternative investment opportunities.

Phased execution serves as a cornerstone of this project, enabling a deliberate and systematic approach that delivers incremental value at each stage. This framework permits advancement towards future milestones while preserving adaptability at every juncture to facilitate additional investment, partial monetization or complete monetization of our investment. To date, we have received unsolicited proposals, reflecting valuations significantly higher than our capital invested. Site work commenced in the fourth quarter and remains ongoing with multiple concurrent work streams underway and initial power delivery anticipated as early as the third quarter of 2027. We look forward to providing additional updates each quarter as the project progresses. Triboro demonstrates our relationship-focused, value-driven conditional capital approach. Relationships port through this transaction continue to yield additional investment opportunities.

With that, I will now turn the call over to Kevin.

Thank you, Ryan. During the quarter, we generated adjusted funds from operations of $75.8 million or $0.38 per share, a 5.6% increase over Q4 of 2024. For the full year, we generated $296.3 million or $1.49 per share, a 4.2% increase year-over-year, driven by strong same-store rent growth of 2% and approximately $430 million in stabilized investment activity throughout the year.

The year's results also benefited from lower nonreimbursable property expenses from re-leasing activity that occurred at the end of 2024 and lower carrying costs from health care-related dispositions that occurred at the beginning of 2025. Lost rent totaled 31 basis points for the year, down from 67 basis points during 2024. Core G&A was well managed once again during the year, with expenses totaling $7 million during the fourth quarter and $28. 7 million for the full year, down 2% year-over-year. These were partially offset by higher interest expenses associated with our revolving credit facility driven by an increase in acquisitions activity.

With respect to the balance sheet, we ended the year with pro forma leverage of 5.8x, approximately $11 million of unsettled equity and over $700 million available on our revolver. In December, we amended our bank term loans, resulting in a 10 basis point reduction to each of the loans all in rates, and an incremental 25 basis point reduction to the 2029 term loan rate. We also amended the 2029 term loan maturity date, providing a fully extended maturity into February 2031. With limited debt maturities through 2027, we maintain sufficient financial flexibility as we look ahead. Regarding the capital markets more generally, our posture remains opportunistic. Example of what you saw with our $350 million September bond issues.

More recently, our decision to issue a small amount of new shares via the ATM was similarly situated as we evaluate our robust pipeline of investment opportunities and approach rent commencement on a number of our build-to-suit projects. Including incremental sales after year-end, we currently have approximately $43 million in unsettled equity that we expect to sell at the end of the year.

As John alluded to, we are not interested in raising equity and significant scale at these levels, and we'll look to self-fund our investments if or as needed. Last week, our Board of Directors approved a quarterly dividend of $0.2925 per share, representing a $0.25 or approximately a 1% increase over the prior dividend. The dividend is payable on or before April 15, 2026, to shareholders of record as of March 31, 2026. This increase reflects our return to growth in 2025 and visibility to additional growth in 2026 and 2027, and we are excited to be in a position to translate that momentum into dividend growth while continuing to target a mid-70% payout range at the end of 2026.

We are reiterating our 2026 per share guidance range of $1.53 to $1.57 per share with the following key assumptions: investment volume between $500 million and $625 million. disposition volume between $75 million and $100 million. And finally, core G&A between $30 million and $31 million, revised down from $30.5 million to $31.5 million in our initial guide given better-than-expected core G&A for 2025 and our continued success in managing these expenses.

As previously mentioned, we also include 75 basis points of lost rent with our 2026 guidance and we'll revisit this assumption throughout the year. It's always 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 market activities that may occur during the year.

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

[Operator Instructions] Our first question today comes from Anthony Paolone with JPMorgan.

My first question relates to just the competitive landscape for build-to-suit opportunities. We've seen since you all have ramped this up a couple of the net lease name also lean into that strategy. I'm just wondering if you're starting to see any more competition or others enter into the space.

Invitation certainly is the sincere form of flattery, right? We're pleased to see that others are finding the same value in build-to-suits that we do. That being said, we have not seen an increase in the level of competition on the deals that we're looking at. And that goes to what Ryan was discussing in his remarks, the relationship-based nature of the way that we source our deals. .

Our goal is to find partners who are looking to help us grow our business where we're helping them grow theirs. And so in the same way that we look for mutually beneficial solutions to tenant issues. We're also looking for mutually beneficial relationships on the build-to-suit side. So by contrast, we've actually seen a big uptick in the amount of build-to-suit activity that had come across our teams desks, particularly in the last 10 days of new opportunities that we're excited about with potential completions in 2027 and even out into 2028. So certainly more attention and activity in the area, but it's not impacting the top of our funnel or the way that we're able to source deals that we'll be able to add to our pipeline over time.

Okay. And then just my second question relates to Project Triboro. You mentioned maybe an initial delivery in 3Q '27 for power. Like how much of the 1 gigawatt would that be? I mean the gigawatt is a lot, and it seems like the capital investments could be quite sizable. And so just trying to get a little bit more context around that time line and what that means?

Sure. I'd say it's a little too early to tell. We are looking at different load ramps in talking with PPL about it, I would say that when we think about the power, we really kind of think about it in 2 phases, and the first phase is 300 megawatts. And the second phase takes you up to the gigawatt.

It would likely be some portion of that initial 300 megawatts and probably somewhere over 100.

Our next question comes from Eric Borden with BMO Capital.

You talked about different types of capital sources that you may potentially be using in 2026. One of those was the potential opportunity to recycle assets. I just want to talk about UNFI. If you were to sell UNFI today, how would you expect to deploy those proceeds? Would it be towards traditional acquisitions or funding new developments? And then additionally, how are you guys thinking about the potential leverage implications if the proceeds were used to fund new development activity?

Sure. couple of questions, I guess, to answer. The first is UNFI as a capital source most optimally later this year as that becomes more tax efficient. So as you think about. Your question on use of proceeds, I think there's a timing component to introduce as well. And so we think about all the dollars we're deploying, our commitment in the build-to-suit is sort of a known number today. It will grow over time. And similarly related, we've got a lower target for stabilized acquisitions. And so I'd say, it's less about the mix of the deployment dollars and more about the timing of those dollars is the first answer. And then second, on leverage, you've heard us the last couple of quarters, especially get really comfortable talking about our sustained target of 6x on a pro forma basis.

I think with where we're trading today, we're still dancing around those levels and evaluating what that next capital source is. And to the extent that its equity, it certainly helps the leverage equation. To the extent is a dispo, you sort of maintain that leverage target where it is. So a little bit more to come as the year plays out, but intend to be opportunistic and maintain that level of flexibility.

Okay. And then just on internal growth. I understand you don't provide like formal same-store revenue guidance, but how should we be thinking about internal growth for '26 and beyond is that 2% annual growth rate, a reasonable run rate assumption for B&L?

Sure. I think that's reasonable. I mean you'll see, particularly these disclosures come out quarterly, maybe a little bit of upper momentum around that number, but we look back historically, when we started to disclose this information and for probably 8 or 9 quarters relying on that 2% as a go-forward assumption is reasonable, and then you'll see us move around that and really move that higher over time. .

Our next question comes from Upal Rana with KeyBanc.

On Red Lobster, I understand all 18 sites were under a long-term single master lease. Just wondering how many of your sites are under consideration to either sell or re-lease? And how that impacts the master lease itself? And if there could be some terminations coming in there as well?

Early days in this discussion. We've been, as you've heard us say before, we've reduced our exposure to Red Lobster over the years. We originally had 25 sites were down to 18. We've been interested in reducing the 18 even further, but that was held back by the bankruptcy process, you weren't in a place where you'd be able to reduce it further. We've been actively looking to do that for a while now. .

We're having good productive conversations, but hit a theme over the head multiple times. We are looking for mutually beneficial solutions here. We want to be able to help Red Lobster in their efforts to improve. These sites were performing well on an aggregate basis prior to the bankruptcy. The bankruptcy unfortunately, has had a pretty harsh impact on foot traffic, although Red Lobster CEO was recently interviewed in the Wall Street Journal and talked about 10% increases in brand-wide sales, 18% increases in placer data from a foot traffic standpoint.

So there has been some recovery, not to the pre-bankruptcy levels. we are currently below that 2x rent coverage where we were prior to the bankruptcy. We have seen efforts that they've had in terms of cutting costs and changing up their market strategy. They've had some success with some of those things and particularly attracting young people back to the brand. So we're hopeful that we'll continue to see that. We're open to ideas for re-leasing, moving on from some of the sites, selling them, working with them to improve here. but it has to be something that's mutually beneficial and is helpful to us in our efforts to continue to grow our AFFO per share and not take a big at that is otherwise unwarranted. So early innings, not sure that we'll see any real movement here in the near term, but we'll continue to have conversations and keep an open mind.

Okay. Great. That was helpful. And then on American Signature, I know you're still negotiating a new master lease there. What do you think rents could potentially end up relative to the current rents? And how does this impact the bad debt that you have embedded into full year guidance?

No change. Rents will stay what they were when we win. We're not negotiating a change in those rent levels. The only thing that we're looking at right now is a handful of small lease issues, including consolidating the individual leases into a master lease as you referenced.

Okay. And then the bad debt portion for maximizer for this year?

No change in our assumptions on it. we take a conservative position early in the year with the things that we're looking at. And as Kevin said, we'll revisit that over the course of the year. So if we continue to do as well as we have historically, you'll see that 75 number come down. I mean we were 31 basis points last year, 67 the year before, '24 and '23, and 3 in '22. So our bad debt experience on an actual incurred basis is substantially below what our reserve is.

The next question comes from Caitlin Burrows with Goldman Sachs.

On the build-to-suit pipeline today and for the future, it sounds like you're targeting to announce and complete $350 million to $500 million of projects per year going forward. So I guess, first, is that right? And then can you give any detail on your pipeline of unannounced build-to-suit projects today maybe versus a year ago? And what portion is new versus repeat business?

So the $350 million to $500 million, we think of it as more of like a rolling target. That's how much we'd like to have in the active development stage at any particular point. starts may vary year-to-year depending on what we started the prior year and what we have sort of in the hopper for active developments. So a little bit of a nuance there, but essentially $350 million to $500 million on a rolling basis, which is where we sit today. with what we have under LOI.

It's almost entirely a repeat business, either from a developer or from a tenant standpoint. So folks that we have worked with in some capacity previously. There is one new project in there. We started a new academy sport after our Investor Day at the end of December. We actually started another Academy Sport deal yesterday. And then we have 2, a little bit larger industrial deals that we expect to start here in Q1 that we should have an announcement out about shortly when those are finished up.

Got it. Okay. And then maybe back to Claire. So totally hear you guys on how bad debt has come out relatively attractive over the past few years. You mentioned that you're now expecting or they did exercise their lease termination right for you in 2026. So just wondering what your current expectation is maybe what's assumed in guidance for -- is there a lease termination fee there or maybe not because of the bankruptcy history and then expectation on re-leasing versus selling and what you're seeing kind of in terms of those options right now?

Yes, you're right. There's no termination fee because of the bankruptcy history there. So they exercise the right, they'll walk away under the current structure at the end of June. We know they're in the process of negotiating for new space a little bit further down on I-90, but that hasn't been finalized yet.

So this is still a little bit up in the air. But we're working under the assumption that the property will be vacant on June 30, and we're looking to re-lease it or sell it on July 1. And we've had some good discussions so far with potential counterparties on it, so we're fairly confident. And then any impact from that has already been baked into our view from a guidance standpoint and our view of bad debt for the year. So no change in the way that we would think about the performance over the course of the year relative to Carson.

Our next question comes from Ronald Kamdem with Morgan Stanley.

Just two quick ones. Going back to Project Triboro. I guess, when do you think the Domino's fall in place that you could have a sort of a tenant in hand, willing to take the space. Does that make sense? Like what more do you need to do on your end? And when do you get to the point where you can have a tenant committing to that project?

Sure. I'd say as we're looking at it, the real 2 focal points right now, or I guess I'd say 3 are zoning, which we expect in the near term second being sort of power ongoing conversations with PPL, really working out sort of T&D line paths to the site, their substation, our substation. So significant progress there. And then overall, some say work that commenced in Q4, keep things sort of progressing from a time line perspective.

So I would say that I think we'll officially be in market, looking for tenant and leasing activity in the fairly near term, I call it, first half of this year. But that said, that hasn't stopped folks from calling us. I think -- as well as I do, they're probably like 6 to 10 hyperscale companies that would be interested in the site, they know all these sites, especially those that are a gigawatt of power plus in the country. I don't need to really advertise it for them to find me. So they're calling, and -- but I think to your exact question, we'll be in market in the near term.

That's really helpful. My second question was just sort of, I guess, sort of a capital recycling question, right, in terms of, of course, you're not sort of forced seller of anything here, but given sort of the activity, given some of the market, does it make you want to sort of push more in sort of the noncore sales this year? And then as your sort of capital recycling that, can you just talk about cap rates and return trends both on the acquisition and the sort of build-to-suit side? Like are we seeing those hold? Are we seeing those compressed? Just any sort of high-level color would be helpful.

Sure, I'll take the capital recycling point and hand it back to John for the second. Look, I think with a lot of what's going on in the portfolio, particularly some recent lease renewals and whatnot, some legacy assets are incrementally more attractive. And so we have some interesting opportunities to think about older assets that have a different value equation today. So there's a source there. And then obviously, the sort of flush the equation lever is the build-to-suit.

So the spectrum is quite wide in terms of which assets could be able. We're not forced sellers, we are opportunistic sellers and the trade needs to make sense. And so that range of outcomes when you pair that with some portfolio management probably puts you in a singular outcome of something in the mid-5s to, call it, into the 7s of a range of opportunity, and we'll look to wait that out certainly in the lower end of the spectrum. And so as we get through the year, you'll see us make those decisions and print those numbers.

But accretive is the answer and ideally 100 basis points or better. So on the cap rate side, from a build-to-suit standpoint, we're continuing to find good opportunities in that on an upfront initial cash capitalization yield standpoint in the mid-7s down to the high 6s that then blends to a place in the low to mid-7s just like our existing pipeline. As Ryan mentioned, our existing pipeline is at 7.4% on the upfront cash yields and 8.6% on a straight line yield.

So we're still continuing to find things in the build-to-suit that fit well within that, including being able to structure things in a creative way to drive the yields for our benefit when we're still helping our developers close on these projects and start new ones. Where we have seen a little bit of compression, and I'm sure you've all heard this, other places is particularly on larger portfolio deals and regular way acquisitions. There's been a handful of industrial food processing deals that have been out there that have traded at cap rates that haven't made a whole lot of sense to us given the overall risk-adjusted profile of those investments.

We've been pleased to see that there was an uptick in overall traditional acquisition volume towards the end of 2025 and seeing that going into 2026 as well, not get back to sort of the pre 2023 levels in the same level, but it's been good to see more volume. But as I've been talking about for quarters and quarters now, the demand level for regular way deal flow, sale leasebacks and lease assumptions is significant. And so the dry powder and the demand that's out there is still continuing to put some pressure on those regular way cap rates, which makes us feel even better about our opportunity in the build-to-suit core vertical that we have and the success that we've been having.

The next question comes from Mitch Germain with Citizens Bank.

How should we think about the guidance for deployment, $500 million to $625 million. I mean, what do you consider to be the breakdown between the various diverse ways that you can allocate capital in that number?

Yes. Look, I think you saw it through last year as we were building this pipeline. You walk into 2026 and a bulk of the dollars slated for deployment this year are going to be related to the build-to-suit investments. Certainly, you've heard John say also the last year, especially that we're not interested in saying no to partners who are bringing us strong deals on a stabilized opportunity set. So the answer is both. But I'd say starting this year, it's definitely weighted towards build-to-suit dollars versus kind of the inverse last year.

Great. And then any competition that you're seeing -- increasing competition you're seeing on the traditional acquisition side?

For us, at least, it's just as high as it's been over the last 2 years. I think I've been sort of ringing the bell on the competition for a little while now. We've been in a place where supply-demand characteristics in that lease haven't really matched up for a while because of the steep drop that you saw in net lease transaction volumes in '23, '24, '25. .

Thankfully, that's starting to change a little bit, and you're starting to see that number come up. So hopefully, it will leave you a little bit of the pressure, but we haven't seen that yet. There's been a huge amount of competition. And for us, as an industrial focus, net lease REIT in those industrial assets, they're a little bit chunkier when you can find a portfolio. They're very interesting, and it's a great way for particularly a lot of the private institutional net lease investors to deploy a lot of capital in a very short period of time. So it can sometimes drive a little bit more pressure on those cap rates.

The next question comes from Ryan Caviola with Green Street Advisors.

There's been a lot of noise in the political landscape because of the midterms. But have you seen any of the tailwinds from onshoring start to materialize over the last year, particularly on the industrial development demand front?

We've certainly seen in the build-to-suit pipeline. We've had lots of conversations with developer partners and with potential tenant clients who are all looking actively at ways in which they can bring more of their production capacity here in the United States or to sort of rework an existing logistical chain, you name it. So it's going to be slow going. These are not decisions that get made overnight. We see it often the conversion time line for a build-to-suit deal is much longer than a regular way deal because of the amount of work that has to go into it. going back from site selection, the entitlement process, permitting, working through the design build process, all of the various components that have to go in to make this work.

It takes a long time to get there. So we're excited by the tailwind that we expect that will come from this effort to sort of onshore, nearshore, reshore or whatever, but it's going to take some time to build. But because we've already had so much success in building this strategy and in building the pipeline that we have today, we can be patient and wait for that to come, and we'll use that as a continued opportunity to build this out in the years to come.

Got it. Appreciate that. And then just a quick one on casual dining. Being mindful that Red Lobster challenges are mostly operator-specific. But what commentary have you heard from other casual dining tenants going into 2026, just on sector strengths and their appetite to expand? And is it a bucket that you'd want to add to in your portfolio? Are you kind of built up there?

It's -- I think you hit on it in your question, it's very operator and brand specific. There are casual dining brands that have struggled in recent years, Red Lobster being one of them. And there are other casual dining brands that have done exceptionally well. We've seen both of those in our portfolio with the Red Lobster exposure in years and Applebee's being 2 that have had a little bit of hard time. On the flip side, J. Alexander is a casual dining brand in our portfolio that is doing exceedingly well with coverage as well north of what we would want to see on a stabilized but on a regular basis. So it really depends, to your point on whether or not we would invest more, it would be very operator and brand specific.

We are not actively looking at new casual dining as sort of a focused strategy. But the ones that come across our desk, we'll take a look at it. It's very easy to sort of make a quick decision on, all right, this is something that we would want to do or not. And it's far more of the latter than the former.

The next question comes from Michael Gorman with BTIG.

Maybe just one more on Project Triboro. Just trying to understand when you think about it, kind of we've seen the press reports about the land rush in the data center space. And I'm curious kind of what the incremental value had is from the site work that you're undertaking now versus just looking to be in the market for the raw land to the hyperscalers as it is right now. .

And then maybe just the second point, how do you think about that in the terms of maybe some rising political headwinds around data center development or concerns about AI CapEx into the future and kind of the time line into 2027. So maybe you could just talk a little bit about how that plays out in your underwriting and thought process.

Sure. I think I can take this. John, feel free to jump in. I think there are several questions there. The first is sort of value creation and various milestones along the way from raw land through Powered wind. And then how hyperscalers sort of fit into the mix versus developers and typical real estate investors.

I would say that there is certainly value creation we're seeing it kind of play out and some of the unsolicited offers that have come through. When we think about what our invested capital is to date in the project versus the level at which the office are coming in are coming in, in line with what we'd expect from a power land perspective. So certainly significantly higher than our invested capital to it.

A lot of it really focuses on the time and quantum of power delivery. And sooner rather than later is obviously more valuable. Hyperscalers are certainly competitive in the mix, trying to get in at earlier stages from a land perspective. Like I had mentioned sort of in my other remarks that this is in sight that needs to be highly advertised. They know it's there, they know it's a gigawatt of power and they're certainly circling on it.

So I'd say that they although attempted to get in earlier, we just happen to be's there sooner than them. That is playing out across the country. I think some of the other parts of this question relating to CapEx spend in the future related to AI and data centers and then just political es around it.

I would say, we haven't really seen any slowdown despite whatever the headlines are on CNBC. Certainly, a lot of continued chase and investment, especially when you're getting into the quantum of power we're talking about here. That said, at lower stages, maybe it's a different market, just not as in tune with it. And then from a political headwind perspective, I think you're going to have that with various new things that are occurring. I don't really see a whole lot of challenge with that with respect to this site. Frankly, one of the primary activist groups in the area that have been critical of data center expansion, have even made public commentary about if you're going to do it, this is the type of site that you do it with where it's off the highway, up a hill set apart from residential and not very disruptive. So hopefully, I covered everything. I'm not quite sure, but I think I covered most of what you're looking for.

The next question comes from Michael Goldsmith with UBS.

First question, you invested $750 million in 2025. You're guiding to $500 million to $625 million. I think you talked a little bit about maybe the outlook for '26 being a little bit conservative or doesn't require that much incremental investment. So just trying to reconcile those 2 facts and just trying to understand, assume why point to -- you sell an investment at this point in the year, just kind of given some of your -- also your earlier comments on just the opportunities that you're seeing out there.

I think you sort of touched on it in your question there. We usually start the year a little conservative. Our guide for investment activity. to start 2026 is consistent roughly with what our guide was last year for 2025. And then we revised and updated over the course of the year as we saw more opportunities. With our focus being on this rolling $350 million to $500 million build-to-suit pipeline, we know going into a year that we've already got the majority of our investment activity taken care of. .

We're always going to leave a little bit of room there for opportunistic regular way deals, sale leasebacks and lease assumptions as partners come and approach us for direct deals. And so right now, that's what we've built into this is that we're going to execute on the plan that we already have. We're going to be sticking to the script and moving forward with what we have told you that we were going to do and execute on that.

But we are very open to the idea of opportunistically increasing that if we see the right opportunities with the right people, the right economics over the course of the year, and we've got the capital to do it. So we'll start conservative and we'll build over time. So if that should hopefully help reconcile the way you're thinking about year-end activity for '25 and sort of how we started '26.

Exciting. And then just as a follow-up, you amended some of the term loan agreements. How much of a benefit do you expect to see -- how should that translate to 2026? How much savings do you anticipate from that?

Yes. I mean the $1 billion of term loans that are impacted by the 10 basis points and then $300 million by the 25 basis points. So you got about $2 million. .

The next question comes from John Kim with BMO Capital Markets.

John, you mentioned raising equity in significant scale is not really what you're interested in at this time. That's consistent with what you said at your Investor Day in December. But since then, your stock price has improved, your multiple has gone up about a turn. Can you just remind us what levels you feel comfortable raising equity? And how do you view the potential for multiple expansion if your balance sheet improves back to -- towards the 5x leverage that you've historically operated at.

Yes. So I think it is fairly consistent with what I've been saying. I am thrilled with the improvement that we've seen. Trading where we are getting a full multiple turn above is good. We're still below average. So as I said in my remarks, I'm still pleased and very proud of the total return that we've delivered to shareholders over the last 3 years and in 2025, in particular, and the resulting increase in our equity multiple.

But sitting where we are, the relative valuation still frustrates me, not even being at the average level is something that -- we'll continue to frustrate me until we get there. And when we do, you're talking even at an average equity multiple, you're talking about a stock price that's in that like $21 to $22 range. The word constructive is probably overused in our space on these calls, but I'll use it here.

The setup is certainly more constructive today than it was even 6 months ago. And my hope and belief is that with the execution that we delivered in '25 and the execution that I know we're going to deliver in 2026. It will be even more constructive hopefully towards the end of the year or into 2017, where we can more consistently raise equity at a place that's going to be attractive and getting us into that virtuous cycle. Until we get there, we'll continue to control our own destiny.

Kevin has been dabbling, as he said, on the ATM with the $43 million that we've got on a forward basis through the end of the year with an effective price in the mid- to high 18s, which feels good. relative to the opportunities that we have in front of us with 8.6% straight-line yield on these build-to-suits, the acquisitions that we're seeing, as you heard us talk about earlier. So the place where we're investing the capital relative to what we've been raising makes these dollars work even though it's not sort of the dollars that make my heart go pitter patter.

So we will continue to evaluate. And I think the efforts that we've had should justify pushing this multiple up, even though I know that, that takes time and consistent execution, but that's what I know we're going to deliver, and I think we'll be having a different conversation about this towards the end of the year and into '27.

I appreciate that. But just to clarify, is this a relative multiple that you're looking at relative to your peers, which could be kind of moving around or a total WAC concept? I know you gave the '21 to '22 as a guidepost, but what metric is more important to you?

Both. I mean the answer is both, right? I mean the absolute value is on the second part of John's comments is all measured against what the opportunity set is. And so the answer is both. I think I would apply the concept of sale to the former, meaning relative valuation and levels that are a bit further from the absolute number that works maybe in a different set of circumstances. .

So I'm not trying to give you a not to answer. It's just -- to your point, it is a moving target, and our posture remains opportunistic.

The next question comes from CAitlin Burrows with Goldman Sachs.

I had a quick follow-up question on American Signature, sorry to bring it up again. But just to clarify, I figured all together. You mentioned that they filed in November, and I think the new tenant is paying the unchanged rent as of February 6. So I was just wondering if you could clarify what went on between November filing and February 6?

It was a fairly small assumption. So we had 6 leases that were part of the bankruptcy process. I think we probably have this conversation with folks. There was a handful of them that were identified for rejection as a part of bankruptcy process, but Gartner White was very interested in our sites. .

They have been looking to expand in the last 2 years and this was a great opportunity for them to do it. So as it stands today, they have simply stepped into our 6 leases. And then the conversation that I alluded to earlier is that we're looking to leverage that into a new master lease as well as some additional minor changes in the lease structure itself.

But in terms of the lease dynamics, we didn't lose any -- there was no bad debt associated with American Signature because we were able to collect off of our letters of credit for the [ misrent ] in November. We collected debt -- excuse me, we collected our rent on an administrative basis in the bankruptcy proceeding. And then Gartner White has picked up the tab going forward. So we're in a great spot on that and just want to sort of make some incremental improvements.

Got it. Okay. And then changing topics. You mentioned a few times about seeing what comes across your desk and that kind of inbound type of activity. which is great when it happens. I guess as you think about your investment targets build-to-suit or acquisitions, how active is Broadstone today on that outbound effort either on the build-to-suit of the acquisitions? And how has that changed over time?

Extremely. I would say that a lot of it -- all of it is outbound. I think what John was referring to is they also call us. So a lot of this is direct sourced its relationship that we're talking to multiple times a week. So whether the call is coming in or call is going out, I'd say that it's sort of a 2-way street and it's constant communication. In terms of new relationships that we're mining, I'd say the majority of those new relationships are on an outbound basis versus an inbound. .

Thank you. We have no further questions. And I'll hand the call back to the management team for any closing comments.

Thanks, everybody, for joining us today, and we're getting into the conference season. So we're looking forward to seeing many of you in person in the coming months. Enjoy the rest of your day. Thanks all. .

Thank you, everyone, for joining us today. This concludes our call, and you may now disconnect your lines.

Hello, and welcome to Broadstone Net Lease's Third Quarter 2025 Earnings Conference Call. My name is Elliot, and I will be your operator today. Please note that today's call is being recorded.

I'll now turn the call over to Brent Maedl, Director of Corporate Finance and Investor Relations at Broadstone. Please go ahead.

Thank you, everyone, for joining us today for Broadstone Net Lease's Third Quarter 2025 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 3 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, 2024, and our Form 10-Q for the quarter ended March 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. To start, I would like to thank everyone who joined or listened to our second quarter's earnings call. It was an important one for BNL, and my prepared remarks were certainly longer than usual, but there were important messages I felt needed to be conveyed, and I appreciate the positive feedback it received. Given our lengthier remarks last time and our upcoming Investor Day on December 2, our prepared remarks for this quarter are intentionally briefer. I'm excited to announce another strong quarter of results that reflects the continued success of our differentiated growth strategy as well as the deep expertise and strategic acumen of our team. We have consistently operated in a way that should answer any questions investors have about this team, our strategy or our ability to deliver attractive long-term value for our shareholders. We are proud of what we have accomplished so far but are no less determined to push B&L even higher.

This quarter, we invested $204 million in an attractive pipeline of accretive acquisitions and development projects, collected 100% of our rents, resolved both the At Home and Claire’s situations with all leases assumed and no bad debt incurred from either and secured 1.2% sequential quarterly growth in contractual rental obligations, which helped drive a 5.7% increase in quarterly AFFO per share when compared against the third quarter of 2024. As a result of our strong execution, and as you saw in our release last night, we are raising our full year 2025 guidance to $1.49 to $1.50 of AFFO per share, representing 4.2% to 4.9% growth for the year. On a year-to-date basis, we have invested $552.6 million, including approximately $353.4 million in new property acquisitions, $150.2 million in build-to-suit developments, $40.7 million in transitional capital and $8.3 million in revenue-generating capital expenditures. We are securing accretive yields in both our regular way acquisitions and in our build-to-suit pipeline. For our new property acquisitions in the third quarter, the weighted average initial cash capitalization rate was 7.1% and with strong lease terms and top-tier annual rent increases, we are achieving a weighted average straight-line yield on those acquisitions of 8.2%. The estimated returns in our build-to-suit pipeline are even better, standing at 7.5% on an initial cash capitalization rate basis and 8.9% on a straight-line basis.

Our build-to-suit program continues to mature, providing us with long-term high-quality derisked value-creating growth that, as you've heard me say repeatedly, provides insight into our portfolio's embedded AFFO growth profile, not only in the current year, but for several years into the future. We have started 7 different build-to-suit developments so far in 2025 with budgeted deployment of $256.7 million. In addition, we have multiple new projects under executed letters of intent and have invested approximately $41 million in the form of transitional capital, yielding 7.8% on the first 2 phases of an exciting prospective development project you will hear more about from Ryan in a moment, with the third and fourth phases scheduled to close in the next couple of weeks for an additional approximately $44 million.

We are also seeing a host of attractive opportunities in our build-to-suit pipeline that gives us lots of confidence heading into the end of the year and the first half of 2026. Taking all of that together, we are well on our way to hitting our $500 million goal for 2025, setting us up for continued success in 2026 and beyond. Looking ahead, we believe our industrial-focused strategy and differentiated build-to-suit program will provide us with a substantial platform for attractive growth due to several long-term trends and favorable market dynamics. E-commerce remains a steady tailwind with continued investment in distribution and logistics assets geographically focused on major logistics hubs like Dallas-Fort Worth, Atlanta, Chicago as well as the Northeast, all of which are reflected in our growing pipeline of industrial build-to-suits.

On the manufacturing side, reshoring continues to pick up momentum, and we are seeing more opportunities resulting from this trend, both in our investment pipeline as well as our existing portfolio. Reshoring should also have beneficial knock-on effects for us as those investments will drive additional demand for logistics and distribution facilities nearby. We feel good about where we are headed and believe we are well positioned to take advantage of the value-creating opportunities our strategy provides and this team produces.

Turning to the capital markets. This past quarter saw our successful return to the investment-grade bond market as we completed a public offering of $350 million of 5% senior unsecured notes due in 2032 and nearly 7x oversubscribed. This execution and our results provide further validation of the strength of this company and the appeal of this strategy. On the equity front, we continue to evaluate issuing new shares versus accretive capital recycling opportunities to support our growth plans. With the last couple of days aside, with solid price appreciation this year, our shares are trading at more constructive levels, reflecting both improved market sentiment about BNL and growing investor confidence in our long-term strategy. Recent share price appreciation paired with a strong investment pipeline and supportive debt capital markets may facilitate more activity for us in the equity capital markets, likely through tapping into our available ATM capacity.

At the same time, we remain focused on maintaining rigorous discipline around our cost of capital to ensure that any new investments or capital raises are accretive to shareholder value. We will continue to evaluate opportunistic dispositions where we can recycle capital from mature or noncore assets into accretive investment opportunities that align with our strategic priorities. Our build-to-suit assets are an important part of this balanced approach. We can either choose to hold these quality assets as more traditional long-term net lease investments or monetize them at attractive stabilized valuations once completed. We target a spread between our development yield and stabilized value of more than 100 basis points, representing an additional layer of value creation, a rarity in the net lease world that we expect to recognize either in the form of NAV accretion or through positive capital recycling upon a sale of the asset.

I believe that balancing proactive equity capital markets activity with prudent capital recycling through opportunistic dispositions will position us well to enhance our portfolio quality, strengthen our balance sheet and drive sustainable long-term returns for our shareholders. We have come a long way since this management team was put in place. We have delivered total shareholder return of more than 30% since the beginning of 2023, placing us in the top tier of the net lease space over that time. And year-to-date, we've delivered total shareholder return of nearly 20%. These are incredible returns and reflect a lot of hard work and the value that this team delivers. Despite those returns, however, we still trade below average on an earnings multiple basis. So, to put it plainly, we believe there's still a lot of share price valuation upside built into the Broadstone Net Lease, and we look forward to capturing that upside and delivering on the promise of this team, this strategy and this portfolio in the coming quarters and years.

With that, I will turn the call over to Ryan for more information on our investment pipeline, strategy and in-place portfolio performance.

Thanks, John, and thank you all for joining us. Today, I'm going to start with our build-to-suit pipeline and differentiated investment strategy. Since our inaugural build-to-suit for UNFI reached stabilization in September of 2024, we have continued to scale our build-to-suit pipeline through both existing and new relationships, having started 10 new projects with an aggregate estimated investment of $374.6 million. As of today, our active committed build-to-suit pipeline will deliver approximately $28 million of additional ABR between Q4 of this year and through the end of 2026, representing 6.7% growth in our current ABR. Our 8 in-process developments, which range in size and scale and encompass both industrial and retail projects comprise an estimated total project investment of $370.9 million and have strong weighted average estimated initial yield of 7.5% and a fantastic weighted average estimated straight-line yield of 8.9%, driven by weighted average lease term and rent increases of approximately 13.1 years and 2.9%, respectively. These assets provide long-term, high-quality derisked and value-creating growth that is unique in the net lease space. In a competitive and higher interest rate environment where cap rates are under pressure, we believe our build-to-suit strategy provides us with a compelling competitive edge.

You have heard this from us before, but it bears repeating. Our build-to-suit program gives us access to high-quality tenant and developer relationships, superior yield generation, meaningful value creation, long-term income stability, higher quality in newly constructed buildings and better overall real estate fundamentals. When you consider all of this together, it should be easy to see why we have such a high degree of confidence in the long-term value of these assets and the added flexibility they provide. This past quarter, we also made an additional $17.9 million investment in the form of transitional capital through a preferred equity investment in a consolidated joint venture that has acquired fully entitled land designated for industrial development. This additional investment was for the second phase of this project, bringing our total investment to date to approximately $41 million. We acquired the first phase in June and are scheduled to acquire the final 2 phases in the next couple of weeks, which will bring our total investment to approximately $85 million. This large industrial development is located in Northeastern Pennsylvania and comprises more than 500 acres of developable land.

The Eastern Pennsylvania industrial market is experiencing robust demand with over a 100 active tenants seeking more than 30 million square feet of space for requirements of 250,000 square feet and larger, particularly in Northeast Pennsylvania, where historical and under construction pipelines remain active, underscoring sustained interest amid constrained supply and asking rents continuing to rise faster than the broader region due to limited availability and competitive positioning versus higher cost markets. This site, in particular, has proven to be very attractive to potential tenants because of its strategic location, reaching over 143 million consumers within 1 day's truck transit, its proximity to several major highways and necessary infrastructure and its access to a committed oversized power supply far exceeding standard distribution and heavy manufacturing specifications coupled with exceptional water and wastewater capacities. This transitional capital investment, which is currently earning a preferred return of 7.8% is a great example of the kinds of strategic investing and value-add transaction structuring that we can provide to our developer partners so that we can support the growth of their businesses while we grow ours and maintain necessary optionality.

In this case, this opportunity provides us with the ability to either move forward with a potentially substantial build-to-suit project or given the strong interest we have experienced with this site to date to capture an attractive return by selling or refinancing our interest. We're excited about this one and look forward to sharing more as the project develops.

I'll now turn to our regular way acquisition activity. Through the third quarter, we have closed $253.2 million in new property acquisitions and $8.3 million in revenue-generating CapEx, which together have a weighted average initial cash cap rate, lease term and annual rent increase of 7.1%, 12.3 years and 2.5%, respectively. And the completed acquisitions have an attractive weighted average straight-line yield of 8.2%. Subsequent to quarter end, we have closed on $103.2 million of additional acquisitions and have approximately $67 million of acquisitions under control that are scheduled to close in the fourth quarter, along with $1 million in commitments to fund revenue-generating CapEx with existing tenants, giving solid visibility into our investment activity for the full year. While we are certainly proud of our acquisitions this year, we are incredibly pleased with the way most of them have been sourced. More than 2/3 of our acquisitions have been direct, relationship-based deals where our tenants, tenant sponsors and developer partners have selected BNL to help them grow their businesses through strategic sale leasebacks and developer takeouts. In a hypercompetitive acquisitions environment characterized by an ever-growing number of net lease buyers chasing a rather muted product supply, having a channel of attractive direct deals is more important than ever.

Now shifting briefly to our in-place portfolio. We were 99.5% leased at quarter end with only 3 of our 759 properties vacant and collected 100% of base rents due for the quarter for all properties under lease, representing a 90-basis point increase compared to Q3 2024. With respect to At Home and Claire’s, we successfully navigated through both bankruptcy proceedings with all leases assumed and no concessions on rent. As a result, we do not anticipate realizing any lost rent from either tenant in 2025, with Claire’s already paid up through the end of the calendar year. As you heard from us last quarter, we were confident that we would work through the At Home and Claire’s situations as we have with any other portfolio matter and that we will deliver attractive AFFO per share growth despite the noise surrounding these 2 discrete tenant credit events. That proved to be the case, and those situations serve as 2 further examples in a growing list of instances where the market has overreacted to a tenant event and the subsequent headlines despite our long track record of successfully dealing with these types of situations when they occur. The impact on our business from a tenant credit event has rarely been from the event itself. More often, it has been from the market's overreaction and the corresponding effect on our share price. Here, we have proven again that our underwriting is sound and our battle-tested team can navigate difficult situations when they arise.

With that, I'll turn the call over to Kevin.

Thank you, Ryan. During the quarter, we generated adjusted funds from operations of $74.3 million or $0.37 per share, in line with the prior quarter and a 5.7% increase over Q3 of last year. Core G&A totaled $7.4 million for the quarter and $21.7 million year-to-date, continuing to track in line with the low end of our full year expectations of $30 million to $31 million. Year-to-date bad debt totaled 30 basis points, benefited by no bad debt incurrence during the third quarter. We have funded our investments through a combination of retained cash flow, disposition proceeds and our revolving credit facility. We ended the quarter with pro forma leverage of 5.4x net debt, approximately $38 million of unsettled equity and over $900 million available on our revolver, maintaining sufficient financial flexibility heading into the end of the year.

In September, we raised $350 million of 5% senior unsecured notes due November 2032, marking our return to the investment-grade bond market for the first time since our inaugural issuance back in September of 2021. The transaction garnered significant interest with an order book that was nearly 7x oversubscribed and proceeds were primarily used to pay down our revolver balance. This level of interest in our business from this investor base is highly encouraging as our attention turns back to growth capital alongside medium-term refinancing needs. We will continue opportunistically evaluating this market moving forward with an eye for maintaining our strong balance sheet and financial flexibility, making decisions we want to make versus those we have to make.

Last week, our Board of Directors approved a $0.29 dividend per share payable to holders of record as of December 31, 2025, on or before January 15, 2026. Our dividend remains well covered. Our payout ratio continues to decline given our earnings growth from a peak of approximately 80% in Q1 of 2024, and our yield still represents a compelling investment relative to our peers. As John mentioned, we are increasing our 2025 per share guidance to a range of $1.49 to $1.50 with adjustments to key assumptions that include investment volume between $650 million and $750 million, an increase of $100 million at the midpoint, disposition volume between $75 million and $100 million, reflecting identified transactions that have already occurred or are expected to occur by year-end.

Regarding bad debt, we would normally maintain at least 50 basis points for the remaining months in the year, but given no active or highly probable workup scenarios, we are expecting little to no bad debt to close out the year. Finally, it's always 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. Please reference last night's earnings release for additional details, and we will now open the call for questions.

[Operator Instructions] First question comes from John Kim with BMO Capital Markets.

A couple of questions on the build-to-suits. John, you mentioned the value creation that you are set to realize and some of these build-to-suits may be capital recycling opportunities for you. Is that currently your preferred outcome for some of these developments? Or are you just using that -- or you just mentioned as a potential source of income?

It's certainly not preferred. I'd like to joke that these are our babies. We're growing them up. We'd love to hold on to them for the long term. But given where cost of equity sits today, particularly after the last couple of days, it's something that we'll spend a lot of time thinking about. Our plan is to make sure that we can control our destiny. And if we need to sell off some of these assets and capture the upside, not only is that going to be a great source of capital for us to be able to continue to grow this business, but it also helps prove out the concept. It's one thing for us to continue to emphasize the value creation, and it's certainly something that we can point to market statistics and BOVs and all sorts of things, but there's a proof of concept there that may be useful one day in the future. So not the preferred outcome, but it's certainly something we're willing to do to continue to fund the business.

Okay. And then second, are you seeing more competition for build-to-suit projects given the success you've had so far? And then just following up, if you do sell some of these assets, some of these developments, would you need to put them back into acquisitions from a 1031 perspective? Or can those funds be put back into the developments?

So, from a competition standpoint, we're certainly seeing a little bit more, but the way that we have been working our relationships and making sure that we prove out the value of this team and the creative structure that we can bring and the surety of execution, the goal is to not to have any. Our best developer relationships are the ones where they bring us their pipeline every single week, every single month, and they provide us with ample opportunity to look at their deals and to work on them directly with them and not have to go through a marketed process. Ones that may involve a marketed process are slightly less appealing to us. We're looking for good relationships, and that's something that we're similarly seeing on the acquisitions front, where the majority of our deal flow this year has been from direct off-market relationships where our clients or sponsors are coming to us and looking for us to work with them. So those are the same types of relationships that we're working to curate within the build-to-suit pipeline. From a tax efficiency standpoint, certainly, we'd be looking at that. We're not going to be in a spot where you're going to be working losses or anything on these. So, you want to make sure that we could readily deploy that into 1031. So that way, we're not having any of the tax inefficiency that could come with it. So that would be more in the usual acquisition vein than it would be in build-to-suit.

We now turn to Upal Rana with KeyBanc.

John, I appreciate the commentary on the ATM in your prepared remarks. But when you're looking at the possibility of issuing equity, are you looking at a particular share price or -- on when to issue? Or is it based on the opportunity you're seeing coming up in order to execute on more investments?

That's a little bit of both, but we lean more towards the opportunity set and looking at what the incremental cost of capital is relative to the investment pipeline. So that's why I mentioned in my remarks, both the pipeline itself and having a more constructive cost of capital, which was, of course, a little bit more constructive 3 days ago than it is today. But short term isn't going to drive sort of the longer-term decisions we're going to make here. So, we'll continue to evaluate against the opportunity set. And when that makes sense, that will be more of the driving force than sort of the headline share price in and of itself.

Okay. Great. That was helpful. And then in terms of the build-to-suit pipeline, are you working to add anything more to 2026? Or are you just looking at potentially building out 2027 at this point?

For 2026, we feel pretty good. As you heard from Ryan, we got $28 million that's coming online between now and the end of 2026 for 6.7% ABR growth. That feels great. So right now, we're a lot more focused on 2027 from that standpoint. We'll certainly be adding some incremental growth from an acquisition standpoint in '26. But the build-to-suits that are at the finish line right now for us, and as I mentioned, we've got a handful of things under executed LOI. We've got a handful of things in late-stage negotiations that we believe will come together in the next couple of months here. Those are really going to be for the benefit of '27 when you're talking average builds somewhere in that 10-, 12- to 15-month range.

We now turn to Anthony Paolone with JPMorgan.

Great. Just if I look at your lease expiration schedule between now and the end of 2027, it's about 10% of ABR. Is there anything we should be thinking about at this point where there's either like known move-outs or a part of that piece of the portfolio that you'll have to backfill or do something with?

Nothing material. The executions that we've had so far this year have been really good. We've been at like 108% from leases that we have executed for situations where we know someone is vacating. We've been able to get out in front of it in terms of finding someone on the back end to either re-lease or to sell, and we're doing the same thing. We've already gone through -- our underwriting teams already looked all the way up through 2028. So, we're planning well in advance and are having advanced discussions with those folks for '26 and even some for '27. So, nothing material, and we feel pretty good about our ability to work through those over time. And particularly next year, there's only 3%. So, it's a fairly immaterial amount.

Okay. And then, John, you said you kind of want to keep your babies. If we go outside of maybe some of the build-to-suits and things that you've been doing, what portion of the portfolio do you see as just being noncore, more regular way dispositions? And is there positive, negative or a wash on spreads on those types of transactions versus maybe where your investment returns are?

So regular way disposition strategy for us outside of opportunistic sales is going to be a lot of like what you've seen this year, more in that like $50 million to $100 million. It's going to be regular portfolio pruning, customary asset management type stuff where we believe the right decision is to sell and move on from an asset. And usually after we've exhausted all alternatives or taken steps to try to improve the value of it before we go, whether it's from a lease extension or doing some TI or what have you. Opportunistically, we will look for places. We actually have right now a handful of assets where we've received unsolicited offers to sell those, and we'll evaluate them and see if it makes sense for us to use that as an additional source of capital to redeploy back into our investment pipeline. From a noncore standpoint, of course, as you all heard me say lots, we will continue to work through the remaining clinical, but that's fairly immaterial. And so, we'll take it bit by bit. Office will go bit by bit. So, there's nothing holistic we're planning to do with either one of those. Anything that we're going to be doing on sort of that risk mitigation asset management, hopefully, we're at par or better, maybe a little bit of a quality trade that we're getting from a higher cap rate into the stuff that's core to our business. And then anything that we do opportunistically, we'll be doing primarily from a view of being able to get a good spread and reinvest it into the pipeline.

Our next question comes from Caitlin Burrows with Goldman Sachs.

Maybe on the transitional capital kind of properties or investments, you guys list 3 of them now. I know you gave some detail in the prepared remarks, but I guess I was wondering if you could talk like how you think about those investments and the future plans. It sounds like maybe the industrial future plan might be different than the retail one. But for the industrial one, is it that you expect it to ultimately convert to a development site or not? And then on the retail one, kind of what's the outlook for that as well?

Yes, I'll take the retail one first. That was less than $1 million. It was a few hundred thousand dollars that we put in the retail site. It was in terms of re-leasing TI that we were doing there. Just as a reminder, that is a community center in St. Louis that's anchored by one of the top Home Depots in the country. That transitional capital came about as a way for us not only to support one of our developer partners' growth, but also we were able to acquire 7 individual assets on a sale-leaseback basis at basically high 7, low 8 cap rate for things like Chick-fil-A and Bass Pro and Burger King and things like that. So, a very attractive opportunity for us to not only get some individual sale -- individual deals, excuse me, not sale leasebacks, but then to also get this preferred capital joint venture structure that we put in place for Sunset Hills, the property that we own, where -- we'll hold it for the next couple of years. We were waiting for the Home Depot to renew its lease, which it did this year. Right now, we'll hold, but then there may be a plan in the future if we choose to monetize that.

On the industrial side, it's still in early stages. So, we're a little bit limited in what we can say, but our view is absolutely that, that is going to convert into a build-to-suit. We came into it with the view of not only having a lot of optionality, but also a lot of upside. You heard from Ryan on the call about the heavy power, heavy water, the strategic location. We're seeing a lot of interest in the site already by both prospective tenants, including those in the beverage, packaging, logistics industries. We also have some owner users that are looking to purchase the land from us already, actually at a multiple of our invested capital. So, lots of upside, we think, lots of optionality depending on which way it goes. And the hope is that, that will convert in the near term into one or more build-to-suits for us.

Got it. And then sorry to bring it up again, but just on the funding side, so, I know last quarter and obviously, a lot has happened since last quarter, but last quarter, you guys mentioned how you still had leverage capacity and the share price wasn't so attractive. So, you'd lean into the leverage side. I guess how are you thinking today, I realize that it's share price dependent, but about like you even mentioned in the prepared remarks that you think there's still a lot of upside to the share price. So, leaning on leverage maybe for longer, realizing you don't have a crystal ball on the equity side, but leaning on leverage for longer before relying on the equity side, I guess.

That's a fair summary I think, still holding pretty firm to our staying inside leverage, our 6x leverage on a sustained basis. And so, we've been talking all year how we plan to put that to work. That's what we're doing, but still very much aligned with maintaining that discipline around the balance sheet. And I think if you pair that with John's comments earlier about the opportunity set relative to where we're trading, it's certainly a dynamic equation that we continue to evaluate.

We now turn to Ronald Kamdem with Morgan Stanley.

Just 2 quick ones. Just back to the regular way acquisitions. I take it that was a big driver of the guidance raise sort of this quarter. Maybe can you just talk through just the amount of product that's been coming online? And between industrial and retail, are you sort of seeing any sort of changes in cap rate, cap rate compression or anything like that? So, talk through the product on the market and potential for cap rate compression industrial versus retail.

Yes. So, we're seeing a lot of good product. It's certainly not as much as I think we or anyone hope for. Hopefully, those numbers will increase over time, but that's going to take some macro shifts either from an interest rate environment or from an overall sort of macro certainty and calm to start seeing a little bit more volume and see it creep back up to levels a little bit higher than what we've seen since 2023. Cap rates feel like to me at least that they’ve plateaued a little bit. Competition is as fierce right now as it's been as we've been at least talking about it for the last year. There's lots of folks that are looking for industrials because they're bigger ticket sizes and then the retail stuff has obviously been in favor, and that's the majority or the predominant asset class for most of our peers and for a lot of the private platforms that have come online this year. So, we're still focused on things that work relative to our cost of capital. So, we're in that sort of 7 cap and north range for everything that we're looking at as things sort of go south from there. From a cap rate compression standpoint, it starts to be less interesting to us. We also find a lot of those deals to not necessarily be appropriately priced from a risk-adjusted return standpoint. There's lots of folks that have different incentives than we do in terms of deployment and leverageability and things. So multivariable calculus in terms of how we're thinking about what we're going to be adding into our pipeline.

Helpful. And then just back on the build-to-suits, maybe just a quick update on just the -- I know you guys mitigate a lot of the construction costs and so forth. But just what's the update on the environment in terms of where construction costs are trending and so forth?

Yes. Construction costs certainly have gone up. The tariffs didn't help in a lot of ways, but most of that is on the hard cost components of our build-to-suits and that on a relative basis is a fairly small percentage of the overall budget on these things when you add in all the design and the architecture costs and soft costs and things like that. So, they certainly have gone up. Labor has gone up as well. But in terms of being able to make the economics work for us, we haven't had any issues with that.

We now turn to Jay Kornreich with Cantor Fitzgerald.

I just wanted to follow up on the regular way acquisition side of the story. As that part of the investments start to pick up, are there any guideposts that you think about as to what part of the future earnings story you'd like to see regular way acquisitions versus developments?

So, I'd love to be in a spot at the beginning of every single year where our sort of forward pipeline of build-to-suits that we have coming online in a particular year gives us a baseline of growth that we feel is relatively attractive in and of itself. And then put ourselves in a position through the regular way acquisitions where we can sort of top that off and push our growth to a more attractive place. And then maybe as importantly, we always want to be in a spot where when we get the phone call from one of our clients, one of our sponsors, one of our partners that they have a deal that they want to do with us directly. They're not taking it to market. They want to work with us because of the relationship that we're always in a spot where we can be able to do those deals. And that's something that we've been emphasizing a lot this year. If you look at the volume of deals that we've done this year on the regular way side, it's about $430 million closed and under control, more than 2/3 of that, maybe even higher, are things that we're seeing on a direct relationship-based off basis place, and that's why that number is higher than we anticipated at the beginning of the year. At the beginning of the year, there were certain ones that we saw. But as the course of the year moved on and people started calling, we were in a spot where we could help them grow their business at the same time that we grow ours, and that's something that we always want to make sure that we can do. So going into a year, we want to have a baseline of growth already locked in and then be in a spot where we can upsize that with additional deals at the same time that we're serving our clients' needs.

I appreciate that color. And then just one follow-up on the tenant credit side. You mentioned expecting no bad debt through the rest of the year, which is great. So just curious, as we look into 2026, are there any specific tenants on the watch list to call out? Or is it looking, I guess, relatively clean from your vantage point at this point?

Yes. I feel pretty good about our watch list right now. There's no individual tenant names that I would call out in the way that we've had in the past, particularly this year with At Home and Claire’s and Zips at the beginning of it. So, no specific names to talk about. We're paying a lot of attention to the furnishing -- furniture, home furnishing sector, some casual dining stuff as well as folks with near-term debt maturities. So, the list of sort of sectors or industries or factors that we've been paying attention to hasn't changed probably in the last 2 years. It's all fairly consistent, but there's nothing material or no individual names that I would mention.

[Operator Instructions] We now turn to Ryan Caviola with Green Street.

Could you provide some color on the average deal size and box size you're targeting in regards to the acquisition pipeline? I thought it was interesting the last time you acquired this much in the quarter was across 27 new properties in 2024 versus this quarter across 3 larger properties. Is that a strategic shift or just opportunistic?

It's opportunistic. It really depends on are we buying retail or are we buying industrial. Our box size and the ticket size of the deal is always going to be much larger on the industrial side than the retail. So, the change between those quarters is really just a reflection of the makeup of retail versus industrial.

Got it. And then going to the U.S. administration, I know there's been a lot of noise around tariffs. Could you remind us how any policies upcoming are impacting U.S. manufacturing and onshoring activity for your tenants? And is there a timing on any of those tailwinds?

From a tailwind standpoint, I mean, I mentioned this a little bit in my prepared remarks. We actually think that there is a longer-term really positive tailwind for the industrial sector from a reshoring standpoint. And not just from reshoring that manufacturing, but also, as I said, there's these beneficial knock-on effects that you get because as you bring additional manufacturing and other types of activity in the United States, you then have to have the logistics and the distribution assets surrounding it to support that type of growth. So, we think we're entering into a really positive multiyear period where those tailwinds are going to help push some additional interest and investments and good opportunities for us on the industrial side and particularly on the build-to-suit side. So, we're having conversations that are clearly stemming from that type of tailwind from administrative policy. And then we're also seeing it in our existing portfolio.

Our next question comes from Eric Borden with BMO Capital Markets.

I just wanted to touch on At Home and Claire’s. Just given the positive outcome there, could you just provide an update on your long-term thoughts, whether you plan to keep those assets or use them as an attractive piece of paper for capital recycling?

It will depend. At Home, we think, has a decent chance in terms of reemerging the bankruptcy with the structure they put in place. We were very pleased to see during the bankruptcy process that they actually reopened some stores that they originally thought that they were going to be closing, which gives you a view into the confidence that, that management team has in their model and their ability to run that business. So, At Home, we'll continue to evaluate, but that one may sit there for a little while. Claire's is certainly emerging as a smaller business. And so, in the near term, we're going to be looking at, is there a way for us to help them transition to that smaller business. It's great that we're paid out through the end of the year, and they assume the lease on the other side of it. We'll evaluate that in '26. And if we can find a way to help them transition into that smaller business at the same time that we're able to bring someone else into our asset or sell it or do something different with it and generate some additional return for us, either with a re-leasing, multi-tenant leasing or with a sale, we'll absolutely explore that.

Okay. And then just on the build-to-suit side, I know you've mentioned there's some competition from the investment side. But from the owner-user, has there been any change or thinking on their plans to accelerate or decelerate any new building opportunities just given the pressures from layoffs that we've seen in the headlines?

So that's really going to be client-specific in terms of how they're thinking about what their business is. I've said this a bunch of times, but our clients in the build-to-suit space are making multiyear, sometimes multi-decade decisions here. And so, they want to make sure that they're making the right one from a capital allocation standpoint and as do we. So, what we've seen is there's been a little bit of a slowing down of people making decisions, but the pipeline is big enough to accommodate that. And so being in a spot where we can feel confident that the decisions that they're making are going to help support the decisions that we make, if it takes an extra month or a quarter to get there, then that's okay because the pipeline is big enough for us to be able to fill out what we're looking for, for 2026. And as I said earlier, we're already looking at 2027, which is one of the real benefits of this strategy. When you're trying to fill your pipeline on a quarter-by-quarter basis with regular way deals, if a quarter slips, a quarter slips and that can hurt a lot. When you're in our business and you're looking out to 2027 and the growth you're having there, if something pushes a month, but you're still going to have it come online 15 months from now, that feels pretty good. So, we're in a great spot, both with a robust pipeline with a bunch of resilient operators, developers that are very busy right now looking at new deals and look forward to having additional announcements in the coming months and quarters on that front.

We have a follow-up from Caitlin Burrows at Goldman Sachs.

Just a follow-up on the build-to-suit pipeline. It sounded like you mentioned in the prepared remarks that you were confident in reaching the $500 million of announcements by year-end, which requires a lot more volume. So, I guess as you think about kind of the pace of announcements that you've had this year, is there anything that's held up recent incremental announcements? Maybe they're bigger deals and just take longer? Do you want to just save a lot of that excitement for the Investor Day? Or just could you comment on how that timing is kind of working out versus expectations?

Yes, there's a little bit of timing there where some stuff will close -- sort of close in terms of becoming committed towards the end of the year. But I don't think we're as far off as you might. We're at [ 256.7 ] in terms of 7 different build-to-suits that we started this year, beginning with Southwire, which we paper closed at the very, very end of '24, but didn't actually start funding until January. You take the multiple projects we have under executed LOI, which hopefully we will have some of those out in the next couple of weeks and months here. And then we are looking at our transitional capital, the $85 million investment we've got there as a future build-to-suit. So, take all those things together, we're north of $400 million. So, it's a chip shot for us to finish out the rest of the year, and we feel pretty good about what we're seeing in the pipeline for it.

We have no further questions. So, I'll now hand back to John Moragne for any final remarks.

Thanks, everybody, for joining us today. Hope you have a good rest of your day.

Ladies and gentlemen, today's call has now concluded. We'd like to thank you for your participation. You may now disconnect your lines.

Hello, and welcome to Broadstone Net Lease's Second Quarter 2025 Earnings Conference Call. My name is Elliot, and I will be your operator today. Please note that today's call is being recorded. I'll now turn the call over to Brent Maedl, Director of Corporate Finance and Investor Relations at Broadstone. Please go ahead.

Thank you, everyone, for joining us today for Broadstone Net Lease's Second Quarter 2025 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 and 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, and refer you to our SEC filings, including our Form 10-K for the year ended December 31, 2024, and our Form 10-Q for the quarter ended March 31, 2025, and for a more detailed discussion of the risk factors that may cause such differences 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 the date of this call. With that, I'll turn the call over to John.

Thank you, Brent, and good afternoon, everyone. As we announced in our earnings release last night, we have raised our full year 2025 AFFO guidance to $1.48 to $1.50 per share or 4.2% growth at our midpoint. With the $0.38 of AFFO per share for our second quarter representing 5.6% growth compared to 2024.

We are incredibly proud of another outstanding quarter, underscoring the strength of this portfolio and our differentiated growth strategy. Our team's disciplined execution was instrumental in driving meaningful progress on several key tenant matters and our investment activity. This upward revision reflects not only our confidence in the business but also our steadfast commitment to delivering long-term sustainable growth and value creation for our shareholders.

At this halfway point of the reporting calendar, and as we work to continue increasing our momentum as we enter the second half of the year and head into 2026. I thought this would be an appropriate moment to reflect on the progress we have made as a company since this management team was put in place at the beginning of 2023.

The past few years for BNL have been defined by a series of seemingly never-ending questions about our business, our strategy, our portfolio and this management team, and I believe we have answered every one of them with resounding success. As some of these questions continue to linger and weigh on our share price, I thought it would be useful to walk through them today and address them head on.

To start, up until this year, the first question was usually some version of, can BNL successfully repositioned its portfolio. The answer is undoubtedly yes. And as we heard from many investors, we did it better than they thought we could. We've reduced our clinical health care exposure to 2.4% of our ABR, and we have accomplished that while still growing, not shrinking AFFO per share. We successfully exited a noncore asset class at solid valuation levels to focus our attention on what we do best and where we see the greatest long-term opportunities for generating shareholder value while reducing our near-term property operating expenses and mitigating lease rollover risk within a pocket of the portfolio with the shortest [ walt ]. We have shown that we know how to manage our strategic repositioning out of an asset class, which is why we have no intention of selling our remaining clinical assets or our office portfolio in a fire sale. We intend to take our time and maximize the value of those assets through disciplined execution, ensuring we continue growing AFFO per share each year.

The next question is often then centered on whether we can address tenant credit events in our portfolio. Yes, with more than enough examples to prove the point. Net lease is not a zero loss business. Tenant credit matters are bound to happen from time to time. in reacting to any individual tenant credit event as though it has broader implications on our entire business is shortsighted and belies the strength of this company and the portfolio we have thoughtfully constructed since inception. We have proven time and again that we can manage through any tenant credit situation the market wants to throw at us. Not only is our underwriting sound, but we have a battle-tested team deep with operational expertise who can navigate difficult situations as well as anyone. From Art Van to Green Valley to Red Lobster to Zips to [ Stanis ] loss, we have shown that we can resolve and learn from credit events in our portfolio while ensuring we still grow AFFO per share.

The natural follow-up question for this year then is, what about At Home and Claire's. It's no secret that the At Home and Claire's situations have been weighing on our valuation this year. Let's take our two current headliners in turn. First, At home, which represents approximately 95 basis points of our ABR at quarter end and includes 2 properties: At Home's primary distribution facility outside Dallas, Texas, which accounts for roughly 80% of our At Home exposure in a retail store outside Raleigh, North Carolina, which accounts for the other 20%. As everyone knows, At Home filed for Chapter 11 bankruptcy in June.

We believe we are well positioned here for a handful of reasons. First, year-to-date, we have received every dollar of rent that is owed to us from At Home. Second, our retail site is one of the top performing at home locations in the country and also sits in a high-performing community shopping center. Third, we believe our distribution facility is critical to At Home's operations as it services the majority of At Home's retail footprint, and we estimate we are roughly 25% to 35% below market rent. With all indications pointing to At Home recapitalizing its debt structure, streamlining some operations and emerging from bankruptcy this year, we do not have any current material concerns about At home's impact on our business. It's too early to know for certain what the final resolution of At Home's bankruptcy will be, but we are confident in our position, and we'll be certain to keep investors apprised of our progress.

Second, Claire's, which represents approximately 80 basis points of our ABR at quarter end. We own a single clears asset that serves as the company's primary distribution facility in the United States, which is located outside Chicago and Hoffman Estates. With the asset also serving of its corporate headquarters. Based on a handful of recent reports and rumors, players are supposedly considering Chapter 11 bankruptcy as well as some strategic asset sales, potentially of its foreign operations.

As with At Home, context here is important. First, year-to-date, we have received every dollar of rent that is owed to us by players. Importantly, Claire's pays rent on a quarterly basis. So we have already received all of the rent owed to us by Claire's through the end of the third quarter. Second, as Claire's primary domestic distribution facility and corporate headquarters, we believe our asset is strategically important and will remain so.

If, however, Claire's ultimately did vacate, we estimate that our rent is currently roughly 15% to 25% below market. Our asset is in a strong industrial market with access to heavy power, excellent access to I-90 and has already had interest from neighboring businesses looking to expand.

As with each tenant credit matter we have faced in recent years, we are well positioned to deal with Claire's, either as a continuing tenant in the portfolio or as a workout situation if that should come to pass.

Taking all of this into account, we will work through the At Home and Claire's situations as we have any other portfolio matter, and I am confident that we will deliver attractive AFFO per share growth this year and next, despite the noise surrounding these two discrete tenant credit events.

In fact, as you will hear from Kevin during his remarks. Given our progress so far this year on tenant matters, we have reduced the bad debt reserve within our guidance for the remainder of the year to 75 basis points as we have only incurred 45 basis points year-to-date.

So with the existing portfolio questions addressed, the questions then have turned to our differentiated growth strategy. First, a common question has been, will you be able to grow your build-to-suit program in a meaningful way or was the UNFI deal and one-off.

Our build-to-suit program provides us with long-term, high-quality, de-risked and value-creating growth that provides insight into our portfolio's embedded AFFO growth profile not only in the current year but for several years into the future. I'm quite proud of our committed build-to-suit pipeline and believe it stands on its own and answer to this question.

We currently have eight projects comprising more than $370 million of build-to-suit investments that will generate $28 million of new incremental ABR through the third quarter of 2026, representing growth of 6.9% off our current ABR and we are hard at work on a robust and resilient pipeline of additional build-to-suit developments that we look forward to announcing in the coming months, which will provide added visibility into this powerful, compelling and differentiated investment strategy our ABR growth into 2027.

Continuing the growth strategy vein. The next question we get asks what role the regular way acquisitions will play in our future with some investors wondering whether we'll eventually stop pursuing them. Sourcing attractive, current yielding acquisitions is one of our core building blocks and an integral part of our operating model. We continue to source and evaluate a high volume of traditional net lease deals and are focused on sourcing relationship-based investment opportunities where we are not required to rely on heavily marketed deals in an ever more competitive acquisitions environment.

As you'll hear from Ryan in a bit, we've already closed on approximately $135 million in new property acquisitions this year and have another $234.6 million in acquisitions under control. The number of regular way acquisitions we closed in any given year will vary. But being able to grow earnings accretively through a traditional investment while helping our tenants and partners grow their businesses is core to who we are, and that's not going to change. But even with a successful growth strategy, that begs the question. How will you fund your investment activity without a supportive equity cost of capital.

It's been almost 3 years since our last significant equity raise. Although we have a small amount of capital available from some forward ATM activity last summer, we have managed our growth these last few years without reliance on the public equity markets, and we'll continue to do so if need be for the future.

In 2023, we executed on approximately $200 million of risk mitigating sales at a 6% cap rate to fund our growth. In 2024, we had $346 million in sales, almost entirely of clinical health care assets that we recycled into industrial, retail and build-to-suit investments core to our strategy. And now we have a growing pipeline of high-quality build-to-suit assets that we believe will trade 100 basis points or better on a stabilized basis from the mid-7% development yields we are achieving today, creating significant value and optionality for us to continue funding our growth into the future. We would love to be back in the equity capital markets. But we won't do so until our stock price is at a level where those funds are as constructive for our planned growth as the funding that we can create for ourselves.

While we could supercharge AFFO per share growth with a constructive cost of equity capital, which we hope to see in the near term given all that we have accomplished, we have positioned ourselves to continue to meaningfully grow AFFO per share for our shareholders through other avenues. Underneath many of these questions, is an undercurrent about our credibility. Will this management team be able to do what they say they are going to do? Yes, and the evidence is in the answers to all these other questions. We have consistently been transparent, open and willing to answer any and all questions we've been asked. We've increased our disclosures to provide more and better information to investors to prove out what we say. We've told you what we're going to do. We tell you what we're doing, and then we tell you how we did. We have done what we said we were going to do, and we believe we've done it better than expected.

And finally, the most important question of all, can BNL get back to growth. You bet we can. With this quarter's earnings guidance beat and raise, our midpoint now sits at 4.2% AFFO per share growth for the year, which is solidly in the top tier of net lease for 2025. We've been talking about attractive mid-single-digit AFFO per share growth with investors for the future, but we're already delivering that to you today. And with the strength of our in-place portfolio and the visibility we have, the $28 million of new additional ABR to come online through the third quarter of 2026 from our committed pipeline of build-to-suit investments. We believe we are well positioned to deliver attractive mid-single-digit AFFO per share growth in 2026, 2027 and beyond.

Given where those growth rates place us among our peers based on consensus estimates, I have to believe the growth question has been answered too. We have answered every question that has been asked of us since this management team assumed our roles at the beginning of 2023. We have worked tirelessly over that time to reinvent BNL by designing and implementing a differentiated growth strategy, repositioning our portfolio, reorganizing our internal personnel structures and procedures, reinvigorating and intensifying our investor relations efforts prudently but aggressively resolving difficult tenant matters and managing our capital and balance sheet so that we continue to be in a place where we can make decisions we want to not be forced to make those we have to.

We have operated with unshakable confidence that we are creating real value for our shareholders by redefining what's possible as a net lease REIT. And having accomplished all of that, we now expect to see our success properly reflected in our share price and equity multiple. With top-tier growth, a differentiated strategy, a solid in-place portfolio and ability to create meaningful value and the capability to fund growth independently of the equity capital markets. We do not believe our current stock price and multiple make any rational sense. I have never been more confident that because we have executed on our strategy, the way I knew we would over the last few years, relative equity multiple expansion and a meaningfully higher stock price should be a matter of when and not an if. Since this team was put in place at the beginning of 2023, we have worked incredibly hard to get where we are today. We have executed well and delivered results. and I believe now is B&L's time to shine.

Given all that we've accomplished and the success we expect to achieve in the coming years, we thought this will be a great time to host an Investor Day to take a deep dive into our differentiated strategy, preliminary guidance for 2026 and a view of our in-place run rate building blocks for 2027. The date will be Tuesday, December 2, at the New York Hilton Midtown. More details and save the date to come in the fall. We're very much looking forward to this event and hope to see many of you there. With that, I'll turn the call over to Ryan.

Thanks, John, and thank you all for joining us today. We had another strong quarter from both an investment activity and same-store portfolio perspective, demonstrating continued disciplined execution and the unique benefits of our differentiated strategy.

Beginning with our investment activity so far in 2025, we have invested $262.2 million in new property acquisitions, build-to-suit development, transitional capital and revenue-generating CapEx and have a robust pipeline of both traditional net lease acquisitions and build-to-suit developments underway. Starting with our build-to-suit projects, we have been successfully scaling our build-to-suit pipeline through both existing and new relationships.

Since breaking ground on our first build-to-suit with UNFI in the second quarter of 2023, we have commenced 10 projects with six different developers and have an attractive pipeline of additional opportunities that we are working diligently to secure.

In addition to the high-quality nature of the investment opportunities, build-to-suit developments are one of our core building blocks due to their ability to generate embedded revenue growth in future years long before we close the calendar on the current one. Most net lease REITs provide a forward 90- to 120-day view of their pipeline. Our strategy allows us to provide visibility into a consistent rolling, constantly refreshing pipeline of projects over a multiyear period.

As for what is currently in process today, construction has commenced on eight build-to-suit development projects totaling an estimated investment of $371.2 million. This pipeline of in-process build-to-suit development is fully signed up and committed. We now own or control the land, construction is underway and on time. And as you heard from John earlier, have locked in approximately $28 million of incremental ABR today that will begin coming online later this year and through the third quarter of 2026. The representing approximately 6.9% growth in our current ABR. These committed build-to-suit developments represent long-term, high-quality, de-risked and value-creating growth that is unique in the net lease space.

Last week, we announced the addition of three new build-to-suit projects, adding $61.4 million to our committed pipeline. These projects include a new industrial distribution facility located in Dallas MSA for Palmer Logistics, a new industrial distribution facility located in California Central Valley for AGCO Corporation, a new grocery store in the Dallas MSA for Sprouts Farmers Market. With these projects, we are excited to add two new development partners to our relationship base and expect all three projects to deliver in the third quarter of 2026.

Our in-process build-to-suit pipeline has a strong weighted average initial yield of 7.5% and a fantastic weighted average straight-line yield of 8.9%. Which is driven by weighted average lease term and rent increases of approximately 13 years and 2.9%, respectively.

As you have heard us say repeatedly, these projects often come with stronger tenant credit profiles, higher quality and newly constructed buildings and better overall real estate fundamentals, which provide us a high degree of confidence in the long-term value these assets represent in addition to the added flexibility they provide. Not only do these developments provide consistent and sustainable earnings growth in the medium term, but they provide flexibility to either hold this traditional long-term net lease investments or monetize at attractive stabilized valuations once completed. We target a spread between our development yield and stabilized value in excess of 100 basis points, representing an additional layer of value creation, a rarity in the net lease world, that we expect to recognize either in the form of NAV accretion or through positive capital recycling upon a sale of the asset.

This past quarter, we also made a $22.3 million investment in the form of transitional capital, through a preferred equity investment and a consolidated joint venture that has acquired fully entitled land designated for industrial development with several 10 negotiations underway. The land is located in Northeastern Pennsylvania and as part of a larger industrial development opportunity we are currently pursuing and hope to have exciting updates to share later this year.

In a competitive and higher interest rate environment where cap rates are under pressure, we believe our build-to-suit strategy provides us a compelling competitive edge. Access to high-quality tuning and developer relationships superior yield generation, meaningful value creation and long-term income stability. I'll now turn to our regular way acquisition activity.

Through the second quarter, we have closed $113.7 million in new property acquisitions and $2.8 million in revenue-generating CapEx. I which together had a weighted average initial cash cap rate, lease term and annual rent increase of 7.2%, 12.4 years and 2.8%, respectively. And the completed acquisitions had an attractive weighted average straight-line yield of 8.3%. After quarter end, we continued our acquisitions momentum with an additional $21.3 million in new properties so far. As we head into the second half of the year, we have $234.6 million in new acquisitions under control and $4.5 million in commitments to fund revenue-generating CapEx with existing tenants. Of approximately $370 million in acquisitions, we have already closed this year or have under control, more than 2/3 have been direct relationship-based deals. We've been able to accretively grow our earnings while helping our tenants fuel their growth objectives through strategic sale-leaseback transactions.

And while our strategy will generally lean towards industrial investments, we've had success this year from the retail front as well, adding Hobby Lobby to our current tenant roster earlier this year and deepening our relationship with Academy Sports with two new acquisitions this year.

Now shifting to our in-place portfolio. We were 99.1% leased at quarter end with only two of our 766 properties vacant and collected 99.6% of base rents due for the quarter for all properties under lease. Representing a 60 basis point increase compared to Q2 2024. As for lease rollovers, we have already addressed most of the leases slated to mature in 2025. We achieved a better than 100% recapture rate on renewing leases and have successful resolutions in motion for the few remaining this year.

With only 3% of our ABR rolling in 2026 and we have minimum near-term rollover concerns and are actively evaluating and engaging with our tenants on leases scheduled to roll between now and 2028, A proactive approach to managing our lease maturity ladder allows us to mitigate overall rollover risk in any given year, provide clarity and confidence in the growth profile of our same-store portfolio in the coming years. And gives us ample time to resolve any known vacancies long before lease maturity and subsequent NOI roll off.

With respect to our watch list, as John said earlier, we have proven time and again that we can manage through any tenant credit situations that may arise. We recently sold both our [ Stanislas ] Surgical and our room placed assets. resolving both situations and eliminating burdensome vacant carrying costs. Other than our two headline names that John covered earlier, our watch list has remained generally consistent with the home furnishing sector and consumer-centric tenants remaining in focus. We are also paying close attention to some of our remaining clinically oriented health care properties as well as businesses impacted by tariff or inflationary measures. We remain vigilant in our tenant monitoring efforts and maintain great confidence in our portfolio due to its diversified construction, which limits the impact of any potential individual credit events and our proven ability to manage through any such situation that may arise. With that, I'll turn the call over to Kevin.

Thank you, Ryan. During the quarter, we generated adjusted funds from operations of $74.3 million or $0.38 per share, a 5.6% increase over both the first quarter and Q2 of last year. Results benefited from recent investments as well as recoveries of previously uncollected rents and reimbursable operating expenses.

Core G&A totaled $6.9 million for the quarter and $14.3 million year-to-date. Tracking in line with the low end of our full year expectations of $30 million to $31 million. Year-to-date, bad debt totaled 45 basis points, reflecting both the rental recoveries we achieved and limited bad debt incurrence during the second quarter.

We have invested approximately $229 million through the second quarter, nearly 60% of which went into stabilized properties. These investments were funded by a combination of retained cash flow disposition proceeds in our revolving credit facility. We ended the quarter with pro forma leverage of 5.2x net debt, approximately $38 million of unsettled equity and over $800 million available on our revolver. Providing us with ample flexibility as we pursue incremental investment opportunities.

Regarding our dividend, our Board of Directors declared a $0.29 dividend per share. Payable to holders of record as of September 30, 2025, on or before October 15, 2025.

Finally, as John mentioned, we are increasing our 2025 per share guidance to a range of $1.48 to $1.50 with key assumptions that include investment volume between $500 million and $700 million. An increase of $100 million. Disposition volume between $50 million and $100 million. And finally, core G&A between $30 million and $31 million.

Given successful resolution of a few tenant matters, notably including [ Zubs ] carwash, we have reduced our bad debt reserve within our guidance for the remainder of the year from 125 basis points to 75 basis points. It's also worth reminding everyone that our per share results for the year are particularly 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. Please reference last night's earnings release for additional details, and we will now open the call up for questions.

[Operator Instructions] First question comes from Eric Borden with BMO.

I appreciate your comments on the build-to-suit development pipeline. You've made solid progress year-to-date adding through new projects in the quarter. I'm just curious, one, if you still plan to announce $500 million of incremental developments in 2025? And two, if you're seeing interest pick up as companies look to fortify their supply chains across the U.S. and an after to minimize any tariff impacts.

Yes, yes to all of the above. So the $500 million goal is 1 that we still hold, that goal is one that's really focused on the future long-term growth. Anything that we're going to bring in now sort of the second half of the year, if you assume a 12- to 18-month potential deal time frame is really going to come online at the end of 2026, early '27. So given how good we feel about our growth for 2025, the comfort that we have going for 2026 already, we're excited to be looking at deals that are really going to try to start to solidify our view of that run rate baseline growth for 2027 and $500 million is absolutely still in play. There's a handful of things that we're working on right now that are really exciting, and we hope to be able to talk more about into the future.

And in terms of the demand, it's not only that there has been an additional increase in the build-to-suit activity that we're seeing generally across the country. there has been a response to the administration's efforts to try to force people to think more close and locally as folks are thinking about their logistics and supply chain and long-term strategic investments in their assets. But for us, personally, we're seeing an impact or an uptick in the amount of deals that we're seeing because our name is getting out there.

Our team is really deep with experience, having done build-to-suits over the last 10 to 15 years. So they know a lot of the players. So we've been able to reach out to more of them as we've been building out our roster of developer partners. But that industry talks. And so as we've done more deals and they see the things that we're doing, we're getting referrals. We're having people reaching out and saying, like, hey, I saw you did this build-to-suit project over here. Would you be interested in doing this one with me here. So it's not only that the industry itself is starting to see some additional interest and investment from a long-term strategic standpoint. But we, as Broadstone Net lease, are seeing some additional interest as our name is getting out there more and our relationships are starting to build on themselves.

Okay. That's helpful. And then on the regular way acquisition side of things, could you just provide some additional color on the $236 million of acquisitions under control? Any commentary on the cadence of the closing, size of asset types and the expected initial cap rate.

Yes. The generally speaking on a cap rate basis, it's pretty consistent with what we've been doing this year. So thinking around that 7-cap range. It's a bunch of industrial deals primarily. And so they're a little bit larger in size, but that's pretty consistent with what we've been doing historically from an industrial investment standpoint over the last 5 or 6 years. And on a timing basis, those should all close this year for sure with a big chunk of that closing in the third quarter.

We now turn to Anthony Paolone with JPMorgan.

First question is, is the allowability of accelerated depreciation helping drive folks to do deals or -- and maybe help drive your pipeline or not at this point?

There's definitely been talk of that. A lot of the brokers were very excited about the administration's big beautiful bill because of the accelerated depreciation and in particular asset classes like car washes. The carwash industry has been driven by the accelerated depreciation for a long time and the ability for folks to get in there and have some real tax benefits. So I would expect to see a little pickup in that industry. It's not necessarily something that we put a huge amount of tenant to from an industrial focus, but there's definitely some pockets in the net lease world that are quite excited about that.

Okay. And then you mentioned seeing more deal flow as you got further into your build-to-suit program. At this point, does it prompt you to lean toward either a specific tenant type, more or less property-type geography? Like just is it -- are you putting any finer point around just your brackets on what you want to do?

We want to be able to see as many deals as possible and then be able to pick and choose the ones that provide us with what we think are the best possible risk-adjusted returns. So we're not filtering things out from higher up in the funnel at this point. We're trying to get as much into the funnel as possible, and then working with our developer partners to find the things that are the best fit for us in our long-term plans for growth.

We now turn to Ryan Caviola with Green Street Advisors. Please go ahead.

Just being mindful that your relationship-driven build-to-suit pipeline mitigates some of that competition risk. We have seen some private transactions of industrial net lease portfolios this year. How has that increased interest affected pricing you've been seeing? And does it open opportunities for attractive dispositions on that front? What are you seeing on that side?

So both of those things. I would say on the build-to-suit, it's still heavily focused on relationship-based direct opportunities that we're seeing with our developer partners. We're not getting into massive bidding wars like you see in the routine or the regular traditional net lease acquisitions market. But on the traditional net lease acquisitions market, competition has been fierce. There's a lot of new entrants this year. There's a lot of folks with deep pockets of capital. And the competition is picking up for real basic ECON 101 supply/demand stuff, supply is certainly getting a little bit better. It's increased this year. We're seeing more deals this year than we have over the last 2 years. But we're not back to where we were or were close to where we were in sort of that 2021, 2022 time frame. So supply demand is going to put some pressure on those cap rates, particularly in industrial because they're big, they're chunky. The private buyers really like them from that standpoint because it's not having to do the small onesie, twosie type retail acquisitions. So we're seeing a lot more competition from that standpoint.

But to the point of your question for the disposition side, that does make us feel really confident that to the extent that we need to continue funding our own growth, we have a ready supply of assets already in the portfolio. or more attractively assets that we are building right now in our build-to-suit development pipeline, where we're building them at those mid-7 development yields, and we see a competitive robust market that we could sell those into at 100 basis points or better. So that's very attractive to us to the extent that we need to do that to fund our growth.

Appreciate the color. And then for that $600 million investment guide midpoint, is there a sense you could give a rough breakout of how much you see falling into new acquisitions versus development versus transitional capital going into the second half of the year?

So if you take what we have already closed so far this year plus what we have under control, I'd probably break it out more generally into just the regular way deals and build-to-suits. And that split this year is about 60% regular way deals and about 40% build-to-suit fundings and build-to-suit fundings would include some of that transitional capital and things that we're working on.

So that shift -- that may shift a little bit as we get to the back end of the year to the extent that we start bringing on more of these build-to-suits. But the shift, I think, back more towards 50-50 or even inverting would be something we'd see more in 2026. So about 60% regular way about 40% bill-to-suit this year.

Our next question comes from Caitlin Burrows with Goldman Sachs.

Everybody for all the detail in the prepared remarks earlier. I guess maybe on the leverage side, I think you guys mentioned that you're at 5.2x now. I think you've talked in the past about being willing to go up to 6x. I was wondering, is that 6x like something you would actually do? Or do you actually want to say below 5.5%? Or just what are you thinking about target leverage?

I think on a longer run basis, staying comfortably inside 6x is definitely the goal. It is a flexible lever we have at our disposal, particularly as we're building up this ladder. So are we comfortable running up closer to it in the near term. I think the short answer there is yes, but you have got years of looking at how we operate the business here to know that that's not a place you would find us on a sustained basis.

Got it. Okay. And then just bigger picture on the build-to-suit deals. I guess what do you think these companies that are entering into these build-to-suit properties are electing to go that route rather than use existing buildings out there that are vacant?

So these are long-term strategic decisions that people are making about where they either want to locate and/or the type of facility that they need. So one of the things that we always have to balance is making sure that the specificity that they need relative to a particular geographic location or a particular build-out still works for us in terms of thinking longer term about retenanting or repurposing and what the residual value is in those. So it's a little bit of a give and take that we have to manage with folks.

But being able to move into just sort of an empty box that's fundable and works for just annual thing doesn't necessarily satisfy the strategic needs of every business that's out there. it works for a lot of things, but not everything. And so the build-to-suit is far more of sort of a very specific focused strategy on behalf of the tenant to make sure that they're getting something that works really well for them. And as I said, then we then balance it against our views for longer-term residual work.

We now turn to Ronald Kamdem with Morgan Stanley.

Just a couple of quick ones staying on the build-to-suits, number one, just lessons learned, right, you've got $534 million of stabilized and active just in terms of just the process where the biggest risk is as you're sort of executing these contracts and delivering on the assets. Just what are some of the lessons learned that you know now that maybe you didn't know when you started the program is number one.

And then my second question is just -- can you give us a sense of competition based on the size of the projects, right? I'm guessing that when you get over $100 million, is it harder to get the terms that you want or not, again, just a guess, I'd love to hear how competition sort of chicks out as you're going from $10 million to $20 million to $100 million.

Okay. So from lessons learned, I think the biggest one for us has been patients. The build-to-suit process takes a lot of time. I think the second part of that is you have to be willing to do the work build-to-suits are incredibly complex, the amount of time and effort that goes into negotiating all of these documents and working through all of the pieces that are involved. It takes a long time, and it takes a lot of expertise.

A build-to-suit is not something that just anybody can pick up and start working on. You need to have experience in it. You need to have been taught how to do these things. And I'm lucky to have a team of people that have been doing this for a very long time and have a lot of expertise and know how to pursue these in the right way.

So the patients and the willingness to roll your sleeves up and get dirty and start working on these projects, I think, is the biggest lesson. These take a lot. And as I said, it's not something that anybody can just get into. From a competition standpoint, it really varies. We are super pleased about our new sprouts build-to-suit. We've got a little bit of retail build-to-suit work that we've been doing. We'd love to do more. They're small you can sort of build them into a programmatic structure with developers as they're going around and building for their tenants and their clients as they're working with them. So it's something that we're excited to do more in. Our folks that are working on the retail build-to-suit have been very excited to go out and make new connections and find new developers and that sprouts deal is actually one of the new ones that we brought into our roster. So we're very excited about that.

But the retail area for build-to-suit is incredibly competitive. Because it's an area that gets a lot of interest from net lease investors as well as local investors and others. When you get into the industrial space, it depends. On the ones that are a little bit smaller or maybe more bite size and depending on what the tenant credit is you may have an opportunity where it's very light from a competition standpoint. And then when you get to the really large ones, sometimes the competition is as fierce because there's only a handful of developers and contractors and funders in the world that can handle the larger projects that we've been able to see.

And so when I talk about competition, it's both in terms of if our developer partners are looking to other people as well as us, making sure that they see the balance and see the benefit of the relationship with us. But often what we're coming up against is that we've partnered with one of our developers, and we've got a piece of land. And we, as partners, are competing against another developer and another funding source who have a different piece of land, a different design build. And that's where it starts to get really interesting in terms of working with the tenant to help them appreciate why we believe that our piece of dirt and our design and our ability to execute should win out over the folks that we're competing against.

Our next question comes from Upal Rana with KeyBanc.

Great. As it pertains to the bad debt, was the 50 basis points reduction in your guidance all related to the Zip, At Home and Claire's. What else are you making into the remaining 35 basis points of bad debt for the year I just want to get some color there.

So as I said at the beginning of the year, we try to be really transparent around our bad debt. Our goal is always to have our bad debt equal both what we know and have some visibility into plus what we are putting in there just from a prudent standpoint of unknown things could happen. So that way, A plus B equals C. Here, we are both in a spot where we've got clear visibility now to a positive resolution on Zips. Clear visibility into sort of the risk that we saw at the beginning of the year relative to at home. And as I mentioned, we've received every dollar of rent At Home [indiscernible] this year so far. So that risk has dropped dramatically for the course of the year. Same for Claire's. We were paid up on cars all the way through the end of September. So that puts us in a great spot to have good visibility into the things that we did know about and then also reducing because of the back half of the year. And the rest of the portfolio is performing really well in terms of what we are putting in from a prudent sort of unknown standpoint. So it's a combination of all those things.

Okay. Great. That was helpful. And then I appreciate the color on your remarks on the funding comments. Could you talk through where your weighted average cost of capital is today? And what kind of investment spreads you are achieving on your conditional acquisitions and able to two projects.

Yes. We'll take it in two parts. I mean, we're really working off of existing leverage capacity. So your marginal dollar is in that high 4%, low 5% context from a spread perspective. On the marginal new dollar, obviously not particularly attractive. You heard all of John's comments on our view on our cost of equity today, and we're comfortably into the high 8% using our AFFO yield, so not a particularly interesting dollar to use.

And then from the debt piece, we've got 5-year interest, I'd say that's a little bit more compelling this time of year in the T+ 110 to 135 range versus a 10-year that's probably T+ 135 to 140. So you've got 50, 70 basis points of spread compression as you look shorter on the curve. And so you can put that together and say like, could it work on the margin in terms of a neutral or maybe you can squeak out a little bit of investment spread when you consider retained cash flow, sure. But again, I'll start at the beginning of my answer where the real marginal cost is our dollar that we use, which is off the revolver.

We now turn to Ki Bin Kim with Truist.

In regards to your build-out and maybe more so for your manufacturing facilities, are you trying to develop any kind of industry expertise for some of these development deals that are in a higher end dollar size? Or as you said earlier, just the funnel being right open.

Funnels wide open in terms of the deals that we'll look at. There are places, though, where we have seen that people are more willing to reach out to us certainly in the manufacturing space, not just sort of your empty box fungible DC warehouse. And then, of course, also with our airplane hangers that we're building. Not everybody does that type of construction, not everybody has experience with it. And we have a couple that were already in the portfolio. And now we've got two more that we're building for [indiscernible] Nevada for that Doomsday fleet out in Dayton. So we're building a reputation and it's a good one, and it's continuing to push additional deal flow into the top of our funnel, which we're really excited about.

Okay. And can you just help illustrate the number of developer relationships that you're working on, where it was at the beginning of this year? And I guess how much has that grown?

Yes. So when we started this back in the first quarter, early second quarter 2023, it was us in [indiscernible]. We've now built that to where the project list that's included in our public filings. There's now six different developers that are represented in there. And we've got a handful of ones that we're in advanced discussions with now for new projects. and there's even more and further up in the funnel of folks that we're talking to. And as I mentioned, as we continue to build our reputation, we're not only getting referrals from other developers that are saying, "Hey, we've done a project with these guys, and it's not competitive, so you should give them a call". And then also other developers that are just hearing about us as our projects get announced that are starting to reach out. So I expect that that's going to continue to increase. And as you've heard us say repeatedly, the goal here is a robust and resilient pipeline of build-to-suit opportunities, and that necessitates a robust and resilient pipeline and set of relationships with our developer partners, too.

Our next question comes from Catherine Graves with UBS.

We've seen some pretty soft softness in the cold storage subsector this first half of 2025. And I'm just wondering if you're seeing any impact to your food production and processing tenant base as far as any is the shipments are generally expenses pertaining to tariffs being higher? Just any read through there on your tenant base?

There's certainly impacts that we've heard from our tenants in terms of the overlay tariff cost overlays and things that they've been having to address. The nice thing, it's a distinction that I always try to make when folks talk about cold storage is you should think of our cold storage as owner operator. These are boxes and boxes. We don't have any exposure to how much product they have in their facilities or how much they're moving in and out. in terms of what their operations are. We get 1 and check a month from these folks and that's how they continue to pay us. So we're not taking any additional risk with our cold storage facilities than we are anywhere else. So we're paying an engine to it in terms of tenant credit and how we're thinking about them from a performance standpoint, but it's not something that concerns us from our performance.

Got it. That's helpful. And then my second question. It looked like the distribution of retail versus industrial acquisitions this quarter was a bit more tilted industrial in the first quarter. And so I'm just wondering if this is more indicative of your general target exposure to each vertical? Or are you seeing fewer retail deals this quarter. I know you mentioned seeing more competition in industrial, particularly from private players. Some of your peers have also indicated an increasingly competitive U.S. retail transaction market. So just wondering how you're thinking about your retail segment.

Yes, the competition in retail is pretty ferrous. A lot of the new private players that have come into net lease this year have been hyper-focused on retail. So I'm grateful that that's not a huge portion of our strategy because it was, I imagine that the pricing there is getting very difficult for folks that are spending a lot of time on heavily marketed broker-led deals. .

Our retail industrial mix is always going to move a little bit. Our historical average for the last 6 years or so is like 70-30 industrial retail. I think there's a bit of a shift that we'll see quarter-over-quarter. So I wouldn't read any too much into one particular quarter over another. As we start to see the trend lines over the course of an entire year, we can start assessing a little bit. But our goal is to continue to have retail be a healthy part of our portfolio. It's a place where we see good opportunity. And a lot of the deals that we're doing right now as you heard from Ryan, between Hobby Lobby, Academy Sports, the Dollar Generals and other things that we're looking at Sprouts and the build-to-suit, Seven brew in the build-to-suit. These are direct relationship-based deals that we're getting the opportunity to go after because that we performed in the past for these folks that are in those spaces because we have a relationship with the developer on the deal, you name it.

And so finding ways to add retail to the portfolio, that's really attractive to us from both the asset type itself and the return profile. So it will ebb and flow, but I would use the 70-30 as more of a benchmark over a longer-term period of time than quarter-over-quarter.

We now turn to Michael Gorman with BTIG.

Just one quick one for me. John, just given kind of your robust comments to open up the call and thinking about the next 6 to 12 months, especially as the build-to-suit pipeline really gets up on the plane here. Can you just remind us or refresh your thoughts on stock repurchases given the cost of equity as a source of capital -- or the use of capital and as an opportunity? Just how are you thinking about that given where BNL is trading today versus the execution that you highlighted at the top.

So I'm sure I made it very clear. I'm not pleased with where the stock price is. I haven't been for some time. And at this point, I'm struggling to understand why we are where we are when we have done such a good job answering every question that's been asked of us. And I hope at this point, we had a beat and raise this quarter, a large ample pipeline of build-to-suits and regular way deals pushing growth in this year and next a portfolio that's performing incredibly well, a watch list that's in great shape headlines in the watch list that are far more noise than actual pain that we'll start to see that change.

We have a stock repurchase plan in place. It's a tool that I and the Board have always thought it's important to have in our toolkit. It's not one that I hope I ever feel the need to use. But if our stock trends in a way that doesn't make a lot of sense relative to what we believe the value of this company is and what the relative value of our stock is. It's certainly something that we could. But again, I hope it's a tool that I never have to use. And that we start heading in the right direction in terms of the stock price getting into the flywheel effect because with that, we could really supercharge this growth and push this company into a fantastic spot for our shareholders.

[Operator Instructions] We have a follow-up from Caitlin Burrows with Goldman Sachs.

Just a quick clarification or confirmation on the build-to-suit process. Is that something that you like coordinate, negotiate finalized with the tenant or with the third-party developer that has identified the development need or could it be either?

It can be either. We've got direct build-to-suit deals that we're doing ,[indiscernible] Nevada is a great example where we're directly working with that tenant on that project. Often the tenant is brought by our developer partner. And so we're working with them hand-in-hand in negotiating the transaction.

We now turn to Joti Yadav with Citizens Capital.

Your line is open. Please go ahead. I just wanted to hear your thoughts on why the escalators for recent bid projects are much higher? Is it more of a project-based thing or just maturity of B&L strategy here?

It's a little bit of both. We've been seeing higher escalators in industrial for a little while now. There was a very brief period of time where escalators in industrial really got compressed in that like 2021, early '22 time frame, but it's pushed out. So although the weighted average escalators across our portfolio is about 2%. As you've pointed out, you can see in our schedule and in terms of the deals that we've been doing, we're more consistently, somewhere in between 2.5% and 3% on new deals that we're doing, both in terms of regular way acquisitions for industrial and then particularly in the build-to-suit.

We have no further questions. I'll now hand back to John Moragne for any final remarks.

Great. Thank you, Elliot, and thank you all for your time today. If you have any questions or would like to dig in deeper into what we're doing at BNL, we would love to have the opportunity to talk with you about this company, this management team and this differentiated strategy. We will be on the road with a handful of NDRs, investor meetings and conferences during August with more to come in September. We'd like to meet with us, whether virtually or in person. Please reach out and we'll get something on the calendar. Have a great rest of the summer, everyone.

Ladies and gentlemen, today's call has now concluded. We'd like to thank you for your participation. You may now disconnect your lines.