Broadstone Net Lease Q3 2026 Earnings Call Transcript

Quartr
Provided by Quartr
October 29, 2026

Key Takeaways

  • Positive Sentiment: Third-quarter AFFO rose 5.4% year over year to $0.39 per share, and management reaffirmed 2026 guidance of $1.55–$1.57 per share, implying nearly 5% annual earnings growth.
  • Positive Sentiment: The build-to-suit pipeline totaled approximately $456 million across seven projects, with more than $36 million of incremental annualized rent expected to commence through 2027, providing substantial embedded growth visibility.
  • Positive Sentiment: Broadstone raised $259 million through a forward equity offering and has approximately $409 million of unsettled forward equity proceeds; combined with debt capacity and revolver availability, management cited more than $1 billion of liquidity to fund its committed pipeline.
  • Positive Sentiment: Portfolio operating metrics remained strong, with approximately 100% occupancy, 99.9% rent collection, and a 111% lease-renewal recapture rate for renewals completed so far in 2026 and 2027. The quarterly dividend was also increased 1% to $0.295 per share.
  • Neutral Sentiment: Project Triboro remains dependent on zoning, power agreements, and tenant demand, with a path decision targeted by year-end; management sees data-center upside but would pursue a tenant-backed industrial alternative if necessary. Higher interest rates, construction costs up roughly 10%–15%, and slower tenant decision-making are creating headwinds for new investments.
AI Generated. May Contain Errors.
Earnings Conference Call
Broadstone Net Lease Q3 2026
00:00 / 00:00

There are 15 speakers on the call.

Operator

Hello, and welcome to Broadstone Net Lease's third quarter 2026 earnings conference call. My name is Matthew, and I will 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 Business Analytics at Broadstone. Please go ahead.

Speaker 1

Thank you everyone for joining us today for Broadstone Net Lease's third quarter 2026 earnings call. On today's call, you will hear prepared remarks from Chief Executive Officer, John Moragne, President and Chief Operating Officer, Ryan Albano, and Chief Financial Officer, Kevin Fennell. All three will be available for the Q&A portion of this call. As a reminder, the following discussion and answers to your questions contain forward-looking statements, which are subject to risks and uncertainties that can cause actual results to differ materially due to a variety of factors. We caution you not to place undue reliance on these forward-looking statements. For a more detailed discussion of risk factors that may cause such differences, please refer to our SEC filings, including our Form 10-K for the year ended December 31, 2025, and note that such risk factors may be updated in our quarterly SEC filings.

Speaker 1

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.

Speaker 2

Thank you, Brent, and good morning, everyone. Before turning to our quarterly results, I would like to quickly address the stark change in the capital markets and macroeconomic environment that we have all experienced recently. While the moves have been materially negative over the last quarter, since this management team took over in 2023, our team has consistently demonstrated our ability to operate this business through broader market volatility of all kinds. We will continue to operate the playbook that has worked since we started on this journey: disciplined execution, creative thinking, and controlling our own destiny. As many of you have heard from us over the last couple of years, our degree of selectivity has remained elevated for some time, and recent market moves serve more as a validation of our position than as disruption to our plans.

Speaker 2

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

Speaker 2

We started three new build-to-suit developments totaling $326 million, and six others reaching stabilization during the quarter. With our capital already at work and our path forward clearly defined, we believe we enter the fourth quarter well-positioned to deliver on our full year guidance and to carry our momentum into 2027. During the third quarter, we invested $236.6 million, comprised of $63.8 million in a single industrial acquisition, $137.1 million in build-to-suit developments, $35.1 million in transitional capital, and $0.6 million in redevelopments. The acquisition in approximately 544,000 sq ft industrial property was completed at an initial cash capitalization rate of 7.7% with a 15 year lease term and 2% annual rent increases, resulting in a straight line yield of 8.8%.

Speaker 2

The three build-to-suit developments we started this quarter total $325.8 million of estimated project cost at a weighted average initial cash capitalization rate of 8.4% and a straight line yield of 11.3%. In addition to our Colorado project, we started two retail projects in Manor, Texas for Hobby Lobby and Academy Sports. As noted earlier, we stabilized six build-to-suit developments during the quarter, totaling $95.3 million of estimated total project investment at a weighted average cash capitalization rate of 7.3%. Additionally, subsequent to quarter end, our $115 million Southwire project reached stabilization with a first-year cash capitalization rate of 7.8%, adding to the success of the quarter. Today, our in-process build-to-suit pipeline now stands at approximately $456 million, of which approximately $150 million has been invested, leaving approximately $306 million of remaining estimated investment.

Speaker 2

From that in-process pipeline, we expect approximately $36 million of incremental annualized base rent to come online between the fourth quarter of this year and the end of 2027. Approximately $2 million of that arrives in the fourth quarter. Approximately $31 million arrives in the first half of 2027 as Colorado and other projects reach rent commencement, and the balance follows in the back half of 2027. That equates to over 8% growth on our current ABR of $449.5 million from projects that are already committed, under construction, and capitalized, providing a degree of forward visibility into growth that is rare in our space. Our in-place portfolio continues to perform as designed. We ended the quarter approximately 100% occupied on a square footage basis, with all but one of our 767 properties subject to a lease.

Speaker 2

As of the date of our release, we had collected 99.9% of base rents due for the quarter. We also remained active with dispositions, selling three properties during the quarter for gross proceeds of $12.5 million at a 6.6% capitalization rate. That brings our year-to-date total to 13 properties sold for gross proceeds of $86.7 million at a weighted average capitalization rate of 6.3% on tenanted properties. Project Triboro remains a key priority for us, and we remain cautiously optimistic that we will achieve the 2026 goals we set out for this project at the beginning of the year. Ryan will provide a more detailed update shortly, including our progress towards this year's major milestones.

Speaker 2

On the capital front, we took a significant step this quarter, completing our first public equity offering in four years, selling 12.65 million shares at $20.50 per share for estimated gross proceeds of approximately $259 million in connection with forward sale agreements. Together with approximately $167 million of forward sales under our ATM program at a weighted average gross price of $20 per share, we now have approximately $409 million of expected net proceeds from unsettled forward equity. That capital positions us to fund our committed pipeline regardless of the ongoing volatility in the capital markets. Our approach has not changed. We will remain disciplined and opportunistic across all of our capital sources, and we will continue to match fund our investments. Kevin will take you through the details of our balance sheet and funding plan in a moment.

Speaker 2

Based on our year-to-date performance and the visibility our build-to-suit pipeline provides, we are reaffirming our full year 2026 AFFO per share guidance of $1.55-$1.57, with a midpoint of $1.56, representing nearly 5% earnings growth over 2025. We are raising the ranges for both investments and dispositions. The momentum we are carrying into the fourth quarter in 2027 is the product of years of disciplined execution, deliberate portfolio construction, and a build-to-suit platform and differentiated growth strategy that is delivering at scale. I am excited about what we have in front of us and happy to hand the call over to Ryan and Kevin, who will each walk you through more of what is driving our confidence.

Speaker 3

Thank you, John, and good morning, everyone. This quarter showed our platform working at scale. We started $326 million of new build-to-suit developments, stabilized another $96 million, and continued to advance our redevelopment projects and Project Triboro. Let me walk you through where the pipeline stands today, how our in-place portfolio is performing, our redevelopment activity, and then provide an update on Project Triboro. Starting with the pipeline, as of today, our in-process build-to-suit investments now total approximately $456 million across seven projects, roughly 83% of which are industrial. The pipeline carries a weighted average estimated cash yield of 8%, a weighted average straight-line yield of 10.4%, supported by a weighted average lease term of 14.8 years, and annual rent escalations of 2.7%. These are tenant-driven, mission-critical developments structured from the outset to mitigate the risks that typically accompany ground-up development.

Speaker 3

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

Speaker 3

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

Speaker 3

Our second project is our Hoffman Estates, Illinois property, which we moved into redevelopment at the start of the third quarter after evaluating re-leasing the property, a vacant sale, and several redevelopment scenarios prior to the lease term ending. We estimate a total investment of approximately $28.4 million, including the property's remaining basis, and plan to repurpose the existing structure. Target stabilization is anticipated for Q3 2028, with estimated stabilized ABR of approximately $3.3 million, in line with the original property ABR, while significantly reducing the office component of the building's square footage and meaningfully improving the quality of the building and overall value. Now, turning to Project Triboro. As a reminder, this is a large site in northeastern Pennsylvania, more than 550 acres of land with a committed one gigawatt power supply. We have approximately $154 million invested in the project as of September 30th.

Speaker 3

As you all have heard many times before, we did not underwrite Project Triboro as a single outcome investment, and each of the three distinct paths create real value for shareholders. Monetizing the land in the near term, building a hyperscale data center campus, or building four large box industrial buildings. We have continued to invest in this opportunity while creating value and maintaining optionality for all paths forward. On site work, we continue to progress horizontal activity that is common to both an industrial and a data center development. The first of four building pads is nearly ready for vertical construction. Various stages of horizontal work continue across the remaining land. On power, we continue coordination efforts with PPL and are in the process of finalizing our ESA and CSA.

Speaker 3

Our on-site substation design and engineering continues to progress, and timelines remain intact for the initial power delivery anticipated during the first half of 2028. On zoning, we have continued to engage in constructive dialogue with the borough to advance the project under consideration and address the concerns of the borough's residents. In all cases, we expect clarity on zoning, power, and tenant demand this year, which supports our target of deciding among our three paths by year-end. We remain very excited about the value creation opportunity that Triboro represents and look forward to communicating our progress in the near term. With that, I'll turn the call over to Kevin.

Speaker 4

Thank you, Ryan. During the quarter, we generated adjusted funds from operations of $77.8 million, or $0.39 per share, representing a 5.4% increase over the third quarter of 2025. Results benefited from same store rent growth, recent investment activity, and from build-to-suits reaching stabilization. General and administrative expenses were in line with expectations, with core G&A of $7.4 million, trending towards the low end of our full year guidance of $30 million-$31 million. With respect to the balance sheet, we ended the quarter with total debt of $2.9 billion and pro forma net leverage of 5.4 times, down from 5.9 times last quarter, reflecting the forward equity we raised that we intend to settle alongside rent commencements in future quarters.

Speaker 4

Between the August offering that John already highlighted and our ATM activity, our total outstanding expected net proceeds from unsettled forward sale agreements were approximately $409 million as of September 30th. On our last call, we also discussed our new $300 million senior unsecured delayed draw term loan, and we have drawn $100 million to date. Additionally, with $428.8 million available on our revolving credit facility at quarter end, we have over $1 billion of in-place liquidity available to fund the $337 million of remaining estimated investment in our build-to-suit projects, as well as additional opportunities. Looking ahead, we will continue to assess all potential sources of funding, managing around a pro forma leverage target of six times.

Speaker 4

Last week, our board of directors increased our quarterly dividend by 1% to $0.295 per share, payable to holders of record as of December 31st, 2026, on or before January 15th, 2027. Now turning to guidance. Given our year to date performance and the visibility from our build-to-suit pipeline, we are reaffirming our full year 2026 AFFO guidance range of $1.55-$1.57 per diluted share. This guidance is based on investments of $700 million-$800 million, revised higher from $600 million-$800 million. Dispositions of $150 million-$200 million, revised higher from $100 million-$150 million, and no change to total core G&A expenses of between $30 million and $31 million. Given our portfolio performance to date, we are also reducing our bad debt assumption to 25 basis points.

Speaker 4

As always, it is worth reminding everyone that our per share results for the year are sensitive to the timing, amount, and mix of investment and disposition activity, as well as any capital markets activities that may occur during the year. Our guidance now includes less than half a penny per share of estimated dilution from approximately 350,000 to 600,000 weighted average shares related to our outstanding forward equity under the treasury stock method. Please reference last night's earnings release and supplemental for additional details, and we will now open the call up for questions.

Operator

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

Speaker 5

Great. Thanks for taking my question. The first question is just on Triboro. It is encouraging that you are still working towards a decision by year-end. But as you sit here today, which of the remaining items is most important to determining that path forward, whether it be zoning, the power agreements, or getting a tenant commitment. Thank you.

Speaker 2

Yeah. Thanks, Eric. It continues to move forward. We have had really good, as Ryan said, constructive dialogue with the Borough, trying to make sure that we are going about this the right way and responding to local resident concerns and providing the best possible mutually beneficial answer for this moving forward. I think we have heard us say all year that there are three things here. There is zoning, there is power, and there is the tenant. And I think in terms of order of priority, they fall in that order. We cannot have the conversation around power or the conversation around the tenant unless we know for sure that we have got the data center zoning squared away. So that is where a lot of our attention has been.

Speaker 2

That is not to say that we have not continued to work constructively with PPL as they think about their transmission distribution lines. The construction of the substations is going to be on the property, the ESA and CSA, as Ryan had said, and that we have not continued to have a good preliminary dialogue with potential tenants. But of course, the tenants are waiting for that zoning to be taken care of. So the most important thing for us is to have the zoning squared away, and our expectation is that should happen by the end of the year, and then we can move forward with the other two pieces in short order thereafter.

Speaker 5

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

Speaker 4

No, Eric, it is Kevin. I think you have got them pretty well targeted. A variable that seemingly changes every day, certainly every week is the interest rate environment. So that is one we will get sharper on as we cross the calendar here. But you have got the right ones to be focused on.

Operator

Your next question comes from the line of Anthony Paolone with JPMorgan. Your line is now open. Please go ahead.

Speaker 6

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

Speaker 2

Yeah. So obviously, with everything that has changed in the last 90 days in terms of interest rates and overall market and transaction activity, we are seeing what everyone would expect. There is a bit of a slowdown. There is a flight to quality. We, as you know, are not participating in a meaningful way in the heavily marketed deal flow that is out there. What we are seeing is expectations for good, solid deals are probably up 25 to 50 basis points. Deals that may have priced and executed previously that are more highly levered PE backed. In a lot of cases, there are no bids. They are not trading. So that is why for us, as I said during my remarks, our strategy is specifically designed for an environment like this.

Speaker 2

As the volatility that the transactional market is experiencing, we are still looking down at an in-place build-to-suit pipeline of more than $400 million that has really attractive yields on it, both upfront initial cash yields as well as straight line yields. We continue to see good opportunity in the build-to-suit space, and we are working towards executing on a handful of new ones that we hope to be able to do in the next couple of quarters to continue filling out that ladder of build-to-suits going into the end of 2027 and through 2028. So we think our strategy is well designed for this.

Speaker 2

We are still seeing good opportunities for value, and we think the way that we have built this strategy with the focus on the long-term accretive growth of those build-to-suits and then filling it in with relationship-based direct off-market opportunities on the acquisition side, the more traditional acquisition side, is going to be a winning formula going into 2027.

Speaker 6

Got it. Thank you. You have talked about in the past, just leaning more towards a bit more self-funding through dispositions of the things you develop over time. Just wondering if you think that has been impacted by the change in the rate environment. In particular, I think you are now in the clear to sell zone on UNFI, and I think that has been one in the past you have talked about that could be a potential large source of capital at an attractive price. Any implications there to the thinking with the change in the environment?

Speaker 2

Yeah. I may actually just start with sort of how we are thinking about what we have in place right now from a dry powder standpoint. We have got $500 million or more of dry powder in hand right now that we can deploy into good, attractive, accretive investments with an in-place cost of capital based off of the work that Kevin had done this year in the equity and debt capital markets in the low to mid-6s. So we have got dry powder that we can deploy and have it be accretive to earnings, and we do not have to be thinking too strongly about the dispositions like we did in 2023, 2024, when we were working through our portfolio repositioning. That being said, we are doing more. As you saw, we increased our disposition guidance for the year.

Speaker 2

That is both a combination of incremental assets that Mike Caruso and his team have been working on, thinking about selling, finding good opportunities to move them along, and then also sort of the traditional risk mitigation type stuff that we would do. Built into that is a bit more of a chunkier one. We are contemplating a sale of our transitional capital investment in our Sunset Hills retail center. So that is a big piece of why we increased the guidance for the year. If we execute on that, we will be able to redeploy that into the existing pipeline as well as sort of pair that up with the capital that we have got from a dry powder standpoint.

Speaker 2

Just want to emphasize first and foremost, we have got plenty of dry powder that is at a great cost of capital for us to redeploy accretively into the investments that we are seeing, particularly our build-to-suit pipeline. Then we have the flexibility to go out and derive more through our disposition strategy, which, it was real nice when the sun was shining on us for a couple of months there over the summer. But we have been controlling our own destiny through sales and other activities to provide our funding for the last four years, so this is nothing new for us.

Speaker 6

Okay. Thank you.

Operator

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

Speaker 7

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

Speaker 2

Yeah. So we've continued to have conversations with that tenant about Colorado 2.0 and doing the next one. No decision's been made. As I've said to investors for a while now, I think they continue to be in a place where they want to make sure that project's going to go well. We are providing the vertical construction, the powered shell construction. We're not doing the MEP work. That's going to be on the tenant, and so the tenant also has substantial work that they need to be focusing on and thinking about. So it's a combination not only of making sure that our side of the project executes well, and I can tell you it is right now. We actually started going vertical last week.

Speaker 2

The site photos are pretty interesting to see that project move along at a much faster clip, given the prefabricated construction that is at play there versus some of the other tilt-wall construction that we have been seeing in some of our other build-to-suits. It has been super interesting for us. I think that is probably a 2027 decision at some point for that tenant, and we are cautiously optimistic that they will move forward with it.

Speaker 7

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

Speaker 4

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

Speaker 7

Okay. Thank you. I will hold it there.

Operator

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

Speaker 8

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

Speaker 2

It's a little bit of both. I think we are seeing some situations where the tenants are taking a little bit more time to think through their decision. That's not a surprise given the shift change in interest rates and how they're thinking about financing alternatives relative to the build-to-suit and the cost and all those things. It's not surprising. The conversion timeline on build-to-suits is always long. We're never banking on those things moving at a very fast clip. On the flip side, our financing equation changed as well dramatically in the last 90 days, and we went back and had some difficult conversations with some potential deals to make sure that we were getting the appropriate pricing relative to the way that we're thinking about our in-place cost of capital and opportunity cost and all those things.

Speaker 2

There are a handful of deals that we decided not to pursue any further because it just wasn't going to work, and we couldn't get to a place where it made sense. All that being said, the pipeline is still robust. We are still seeing good opportunities. There's lots of things that we're excited about and hope to have some announcements in the near term to put out there, as long as we can find a way for both sides to get comfortable with making sure that the economics continue to work in a fairly changing, volatile world.

Speaker 8

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

Speaker 4

I think on that timing piece, Caitlin, it's sort of project specific. You've seen us be more or less plus or minus 45-60 days from our original estimates. We do our best to tune those in as we get closer to completion. I don't know if there's anything thematic to call out on that piece. On the guide, the treasury stock piece of this equation was less than half a penny, but when you're talking about a guidance range of 1-3 pennies, it's certainly a contributor to sort of holding the line on the range.

Speaker 8

Thanks.

Operator

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

Speaker 9

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

Speaker 4

Yeah, look, I think the name of the game on that front has been be opportunistic. You saw us last year go in September. We're always evaluating longer and fixed. Naturally, in this environment, we're staying shorter. I think our floating rate exposure is probably bouncing between 20%-30% of total debt, and that's probably not a long-term target. With the swaps rolling as well, there's definitely going to be incremental exposure to the short term. As relates to sort of total headwinds, that's sort of a future decision. I think the maturities we have, we have control of, we have the delayed draw term loan to handle them. We have a very supportive bank group on the back end of the year if we needed to think about that one differently. But the opportunistic piece for us is still in play.

Speaker 4

I'm thinking about longer and fixed, so seven to 10-year options at, call it 110 over to 125 over as the marginal debt cost is not an unreasonable assumption. But in the very near term, I would say staying shorter and floating is probably a clearer answer.

Speaker 9

Okay. All right. That's helpful. Then maybe on Triboro, I'm sure you've had plenty of conversations with potential tenants. Is there anything you can share on some of the conversations you are having? Is there anything particular they're looking for or asking for as it relates to the property or lease? Or anything that they're concerned about from the executive order that it's requiring?

Speaker 2

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

Speaker 2

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

Speaker 9

Okay, great. That was helpful. Thank you.

Operator

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

Speaker 10

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

Speaker 2

Yeah. You heard from Ryan. We continue to think about this as having a really strong backstop with the industrial build-to-suit that we initially underwrote this for. If things don't move forward the way that we hope that they will or expect them to, we can always pivot back to 4 million square foot industrial facilities. There's been continued interest from industrial build-to-suit in that market, so we feel good about the backstop. As you've heard us say for the last year, if it is something that can move forward as a data center, we're looking at either selling it or continuing to move forward with it as a powered shell construction. I think the clarity that we've had over the last 90 days is really in terms of if it does move forward as a data center, there's really two paths.

Speaker 2

We're either selling it or we are going to find a private capital solution to fund it. The idea that there might be public equity that we can raise around this off our balance sheet to be able to fund this, I think that's kind of off the table at this point, both in terms of the size and in terms of what we've seen from the market in the last 90 days. When you move forward with a project that's going to be in the multiple billions of dollars on a project budget basis, you got to have some certainty around where that money's going to come from. We don't have a lot of confidence right now that we'd be able to do that from the public equity markets. So we're either selling this project or we're going to find a private capital solution for it.

Speaker 10

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

Speaker 2

Yeah. There's a huge amount of interest in continuing to fund these things that is coupled up with the continued huge amount of demand for projects like this. I think that with projects that are looking at delivering in back half of 2027 and into 2028, like you're talking about with the initial phase delivery on power for Project Triboro, and similarly situated ones where they've done the work in the site level that Ryan and his team have been continuing to advance. There's ample capital that's out there looking to be deployed into projects just like this.

Speaker 10

Thanks.

Operator

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

Speaker 11

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

Speaker 4

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

Speaker 11

Got it. Thanks for that. You mentioned 111% recapture rate on the 2026 and 2027 renewals completed year to date. You still have 7.1% ABR scheduled to expire next year. As you start to approach that, is that the right recapture rate that we should expect next year? How have the negotiations been going so far? Thanks.

Speaker 2

Negotiations have been going well. Mike, as you know, we start working on a lot of these lease rolls 2-5 years before we get to the end of the term. We usually have a pretty decent idea of where those things are going to go, if we are going to be re-leasing to a new tenant, exercising an option, the tenant exercising an option, having a vacant sale where we are looking to redevelop or do something different. The team was working on 2027, as early as 2024 and 2025. We feel pretty good about where we think all these are going to head. I would love to say that you should expect 111%, but I think, if you look back historically, our low to sort of mid 102% to 104% or 5% is really a bit more in line with reasonable expectations.

Speaker 2

Because often we are going to be in a situation where the tenant is going to have the option to renew at 2% or 3% or whatever it is. If we can come to a better solution from there, that is great, but they always have the fallback of just hitting their option and continuing to hold at increasing from whatever the standard lease increase is. 111% is great and kudos to our team for being able to find some really great solutions and positive outcomes on our lease rolls for this year. Hopefully we continue to see opportunities to do that in some discreet situations in the future. But I think it is more in that low 100% range that we should be setting expectations around.

Speaker 11

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

Operator

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

Speaker 12

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

Speaker 2

Yeah. Right now, I think our appetite is really squarely around Colorado 2.0. We'd love to see that come through. We hope that's something that we'll see in 2027. We've got fantastic partners on Triboro in Sansone and Emergent, and they of course, are continuing to look at other opportunities around the country. Whether or not there's a role for us to play, I think is up in the air. These are very large capital commitments. They are very large projects. So the ability for us to play a role will be very project dependent on any of those things. But there's nothing that we're talking about right now that is material enough for us to be talking about, but it really will be very project dependent, and we'll see where things go. But like I said, we've got great partners.

Speaker 2

We're very pleased with what we see in Colorado and what we're working on with Triboro.

Speaker 12

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

Speaker 2

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

Speaker 2

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

Speaker 12

Thanks. Appreciate the color.

Operator

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

Speaker 13

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

Speaker 2

Yeah. I think I would point back to my earlier answer on the advanced tech and data center stuff. We're kind of full up with what we're working on right now. We're always open to new accretive opportunities in the future, but we're very pleased with where we have Colorado and where we have Triboro. There are some larger build-to-suits outside of that context that we're continuing to look at, and hopefully we'll be able to land a few of them. But time will tell as we can work through that. On a construction cost basis, construction costs are certainly up. But that's just provided an opportunity to make sure that we are pricing things appropriately and that rents are getting set at the right levels.

Speaker 2

Depending on if you're talking about hard costs or overall project budgets, maybe we're somewhere in the 10%-15% increase at this point. That then, as I said, just sort of necessitates a conversation around how are we thinking about pricing this? How are we thinking about rents? How are we thinking about residual values and cap rates on the front and back end of these things? So it's a dynamic place to be right now as it's changing very quickly, and we're making sure, referring back to my comments earlier on the pipeline itself, that as our tenants are taking time to think through whether or not these projects are the right thing for them to do, we're doing the same thing.

Speaker 2

Not every project is going to make sense, and so making sure that we are prudently allocating the capital that we have to the projects that we think are going to be the most accretive and earnings powerful in the future is where we're spending our time and attention.

Speaker 13

That's helpful. Going back to sort of the regular way acquisitions, sort of post the interest rate move, you guys have always been pretty selective, but do you think that maybe this would shake up more opportunities for BNL here? Just some thoughts on regular way acquisitions as well. Thanks.

Speaker 2

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

Speaker 2

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

Speaker 13

Great. That's it for me. Thank you.

Operator

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

Speaker 14

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

Speaker 2

Yeah, great question. We spent a lot of time thinking about it because they are an outsized portion of the way that you would think about our tenant mix on a traditional way. Our Colorado tenant is going to be 6% or 7%, depending on sort of how we think about our forward, all their build-to-suit and acquisition pipeline. Now, with the quality of the tenant that we have there, I am quite happy to sit at 6% or 7%. If they want to execute on Colorado 2.0 or what have you, and move it into the double digits, I am also very happy to do that. But these are large projects, and I think we have to think a little bit differently with Triboro, and that maybe hearkens back to my commentary around how we are thinking about financing it.

Speaker 2

We can do Colorado and if we end up being lucky enough to have Colorado 2.0 move forward, being in that 6%-12% range is fine. I am not worried about it with that tenant and that project. Project Triboro is its own thing. It is a bit of a supernova. As I said, based off of the way that we are currently thinking about how you fund that project, we are either selling it and then taking those proceeds, de-levering, and then redeploying it into our core verticals, or we are going to find a private capital joint venture solution for it. At that point, in terms of tenant concentration, it will be far lower than what it would be if you are thinking about it more of on a headline, fully on balance sheet number.

Speaker 14

Got it. That's helpful. Then maybe just pivoting for the other growth avenues, whether it's revenue-generating CapEx or maybe transitional capital or anything, what's the financing environment like for your tenant base? I imagine they're seeing some of the same volatility that you are, and is that opening up additional opportunities in some of those other growth avenues, whether it's helping with expansion or CapEx?

Speaker 2

Yeah. Their cost of capital and their financing opportunities are changing in step with the way that we're thinking about it. There are places where depending on are they pricing off the 10 year, are they pricing off a SOFR? There's been significant differences in the volatility there. The 10 year, depending on the day, is up, whatever, 60 or 80 basis points relative to the beginning of July. SOFR is up, I don't know, it was 20 the other day or something like that. So depending on how you're thinking about pricing these things, if you're doing an ABS facility or doing something else, there are alternatives. But the build-to-suit structure helping from a revenue-generating CapEx with existing tenants because we already own the asset, continues to provide, in most instances, we think an attractive alternative to anything else that's going to be out there.

Speaker 2

We continue to have constructive conversations about deploying capital into all those potential verticals.

Speaker 14

Great. Thanks for the time.

Operator

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

Speaker 5

Great. Thanks for taking the follow-up. Just on Project Triboro with the first pad nearly ready, is there an opportunity to move forward with an industrial building on part of the site while preserving the ability to pursue a data center development on the balance? Or would the site layout infrastructure requirements make those paths mutually exclusive?

Speaker 2

We would not pursue if it moves forward and you have data center approvals from a zoning standpoint and you have the power and the interest. We wouldn't move forward with an industrial site on it because any of the hyperscale tenants that are looking at that project want all of it. They want all of it and then more. We would not put industrial on it to start. The only way that we're going to be putting industrial on those 550 acres is if we end up having to pivot towards the industrial. But as I said, we're cautiously optimistic that we'll have this resolved by the end of the year. Hopefully then we're moving fairly quickly to the conversations on power and on tenancy.

Speaker 5

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

Speaker 2

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

Speaker 5

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

Operator

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

Speaker 2

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

Operator

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

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