BNL Q3 2026 Earnings Call Transcript

The third quarter was a continuation of the progress we have been driving toward all year. And really over the last 3 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 4 years, completing a $259 million forward equity offering. We started 3 new build to suit developments totaling 326 million and 6 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, invested $237 million comprised of $63.8 million in a single industrial acquisition, $137 million in build to suit developments, 35.1 million in transitional capital, and $600 thousand in redevelopments. The acquisition and approximately 544 thousand square foot industrial asset was completed at an initial cash capitalization rate of 7.7% with a 15 year lease term and 2% annual rent increases. Resulting in a straight line yield of 8.8%. The 3 build to suit developments we started this quarter totaled $326 million of estimated project cost, at a weighted average initial cash capitalization rate of 8.4% a straight line yield of 11.3%.

In addition to our Colorado project, we started 2 retail projects in Manor, Texas for Hobby Lobby and Academy Sports. As noted earlier, stabilized 6 build to suit developments during the quarter, totaling $95.3 million of estimated total project investment. At a weighted average cash capitalization rate of 7.3%. Additionally, subsequent to quarter end, our $115 million Southwire project, reached stabilization with a first year cash capitalization rate of 7.8%. Adding to the success of the quarter. Today, our in process build to suit pipeline now stands at approximately $456 million of which approximately $150 million has been invested leaving approximately $306 million of remaining estimated investment.

From that in process pipeline, we expect approximately $36 million of incremental annualized base rent to come online between the fourth quarter of this year and the end of 2027. Approximately $2 million of that arrives in the fourth quarter, Approximately $31 million arrives in the first half of 2027 as Colorado and other projects reach rent commencement, and the balance follows in the back half of 2027. That equates to over 8% growth on our current ABR of 450 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 1 of our 767 properties subject to a lease And 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 3 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 Triborough remains a key priority for us, and we remain cautiously optimistic that we will achieve the 2026 goals we set out for this project at the beginning of the year. Ryan will provide a more detailed update shortly, including our progress towards this year's major milestones. On the capital front, we took a significant step this quarter, completing our first public equity offering in 4 years, selling 12.7 million shares at $20.50 per share, for estimated gross proceeds of approximately 259 million in connection with forward sale agreements.

Together with approximately $167 million of forward sales under our ATM program at a weighted average gross price of $20 per share, we now have approximately 409 million of expected net proceeds from unsettled forward equity. That capital positions us to fund our committed pipeline regardless of the ongoing volatility in the capital markets. Our approach has not changed. We will remain disciplined and opportunistic across all of our capital sources. And we will continue to match fund our investments. Kevin will take you through the details of our balance sheet and funding plan in a moment.

Based on our year to date performance and the visibility our build to suit pipeline provides, we are reaffirming our full year 2026 AFFO per share guidance, which is $1.55 to 1.57 with a midpoint of $1.56 representing nearly 5% earnings growth over 2025. And we are raising the ranges for both investments and dispositions. The momentum we are carrying into the fourth quarter and 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, happy to hand the call over to Ryan and Kevin who will each walk you through more of what is driving our confidence.

Ryan Albano: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 in Project Triborough. 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 Triborough. Starting with the pipeline, as of today, our in process build to suit investments now total approximately $456 million across 7 projects. Roughly 83% of which is industrial.

The pipeline carries a weighted average estimated cash yield of 8% a weighted average straight line yield of 10.4%, supported by a weighted average lease term of 14.8 years, and annual rent escalations of 2.7%. These are tenant driven, mission critical developments structured from the outset to mitigate the risks that typically accompany ground up development. The 6 projects we stabilized this quarter, 2 industrial and 4 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 square foot project, also reached stabilization this month and 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 2 industrial properties that are now under redevelopment. Excluding those 2 properties, same store growth would have been approximately 1.9%. In line with our year to date growth. We have had strong execution year to date on both 2026 and 2027 lease renewals, achieving a 111% recap 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 the Chicago MSA into approximately 156 thousand square feet 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 substantial completion targeted during Q2 of 2027.

We are in active conversations with multiple prospective tenants who are potentially interested in this property. 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 28 with estimated stabilized ABR of approximately $3.3 million in line with the original property ABR, significantly reducing the office component of the building square footage and meaningfully improving the quality of the building and overall value.

Now turning to Project Triborough. As a reminder, this is a large site in Northeastern Pennsylvania. More than 550 acres of land, with a committed 1-gigawatt power supply. We have approximately $154 million invested in the project as of September 30. As you all have heard many times before, we do not underwrite Project Triborough as a single outcome investment. And each of the 3 distinct paths create real value for shareholders. Monetizing the land in the near term building a hyperscale data center campus, or building 4 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. And the first of 4 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. Our on-site substation design and engineering continues to progress. And time lines 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 3 paths by year end. We remain very excited about the value creation opportunity that Triborough represents and look forward to communicating our progress in the near term. With that, I will turn the call over to Kevin.

Kevin Fennell: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 to $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. 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 30. On our last call, we also discussed our new $300 million senior unsecured delayed draw term loan. We have drawn $100 million to date. Additionally, $429 million available on our revolving credit facility at quarter end, we have over $1.1 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 6 times. Last week, our board of directors increased our quarterly dividend by 1% to $0.295 per share. Payable to holders of record as of 12/31/2026 for payment on or before 01/15/2027. Now turning to guidance. Our year to date performance, and the visibility from our build to suit pipeline, we are reaffirming our full year 2026 AFFO guidance range to $1.55 to $1.57 per diluted share. This guidance is based on investments of $700 million to $800 million revised higher from $600 million to $800 million.

Dispositions of $150 million to $200 million revised higher from $100 million to $150 million and no change to total core G&A expenses of between $30 and $31 million. Given our portfolio performance to date, we are also reducing our bad debt assumption to 25 basis points. 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 $0.01 per share of estimated dilution from approximately 350 thousand to 600 thousand 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 1 question and 1 follow-up. If you would like to ask a question, please press 1 to raise your hand. To withdraw your question, press 1 again. We ask that you pick up your handset when asking the question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please standby while we compile the Q and A roster. Your first question comes from the line of Eric Borden with BMO Capital Markets. Your line is now open. Please go ahead.

Eric Borden:Brent. Thanks for taking my question. The first question is just on Triborough. You know, 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.

John D. Moragne:Yep. Thanks, Eric. It continues to move forward. We have had really good, as Ryan said, constructive dialogue with the borough, to make sure that we are going about this the right way and responding to local resident concerns and providing sort of the best possible sort of mutually beneficial answer for this moving forward. I think, you know, we have heard us say all year that there is 3 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.

You know, we cannot have the conversation around power or the conversation around the tenant unless we know for sure that we got the data center zoning squared away. So that is where a lot of our attention has been. 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 that are going to be on the property, the ESA and CSA, as Ryan had said. And that we have not continued to have good sort of preliminary dialogue with potential tenants. Of course, the tenants are waiting for that zoning to be taken care of.

So most important thing for us is to have that tenant, excuse me, 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 2 pieces in short order thereafter.

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

Kevin Fennell:No. Hey, Eric. it is Kevin. I think you have got them. Pretty well targeted, you know, variable that seemingly changes every day, certainly every week is the interest rate environment. And so, you know, that is 1 we will get sharper on as we cross calendar here. But, 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.

Anthony Paolone:Yes, thanks. Good morning. Like to start with just 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?

John D. Moragne:Yeah. So obviously, with everything that is 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 sort of expectations for, you know, good, solid deals or probably up 25 to 50 basis points. Deals that may have priced and executed, previously that are, you know, 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. You know, as for the volatility that the transaction market is experiencing, we are still looking down at an in place build to suit pipeline of more than $400 million that has really strong 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 2020. So we think our strategy is well designed for this.

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, more traditional acquisition side, is going to be a winning formula going into 2027.

Anthony Paolone:Got it. Thank you. And then you have talked about in the past just leaning more towards a bit more self funding through dispositions of things you develop over time. And I am just wondering if you think that is been impacted by the change in the rate environment. And in particular, I think you are now in the clear to sell zone on UNFI, and I think that is been 1 in the past you have talked about that could be a potential large source of capital at an attractive price. And so any implications there to the thinking with the change in the environment?

John D. Moragne:Yeah. So I may actually just start with sort of how we are 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-sixes. 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 are working through our portfolio repositioning. That being said, we are doing more. I mean, as you saw, we increased our disposition guidance for the year. 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 1.

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. We will be able to. If we execute on that, be able to redeploy that into the existing pipeline as well as sort of pair that up the capital that we have got from a dry powder standpoint. So, just want to emphasize first and foremost, like, 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.

And then we have the flexibility to go out and drive 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 4 years. So this is not nothing new for us.

Anthony Paolone: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.

Jay Kornreich:Hey. Good morning. I wanted to ask about the Colorado development Has there been-- 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?

John D. Moragne:Yes. So we have continued to have conversations with that tenant about sort of Colorado 2.0 and doing the next 1. No decision has been made. They, as I have said to investors for a while now, I think they continue to be in a place where they wanna make sure that project's going to go well. We are providing the-- you know, the vertical construction, the power shell construction.

We are not doing the MEP work. that is gonna be on the tenant, and so the tenant also has substantial work that they need to be focusing on and thinking about. it is 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. 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. So it is been super interesting for us.

But 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.

Jay Kornreich:Appreciate that. And then just in terms of the amount of unsettled forward equity and thinking about the timing when you settle that, should we expect that to be more of a money approach with the completion of developments? Or a more, you know, ratable approach as you are, you know, providing capital along process of developments?

Kevin Fennell:it is match funding along completion. Is a more reasonable assumption. I would say sort of mid quarter convention around that is probably pretty reasonable.

Jay Kornreich:Okay. Thank you. I will do. 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.

Caitlin Burrows:Hi. Good morning. Maybe just on the build to suit pipeline of future deals. I realized that the cadence of those announcements can be lumpy, but I guess the last 2 now were in August. So was just wondering if the interest rate volatility has impact that in process discussion. And when you think of the customer and why they are working with you, I imagine it is because they wanna grow their business. So have their own plans changed and how sensitive are they to shift in your required returns?

John D. Moragne:it is a little bit of both. I think we are seeing some situations where tenants are taking a little bit more time to think through their decision. that is not a surprise given the shift change in interest rates and how they are thinking financing alternatives relative to the build to suit and the cost and all those things. So it is not surprising. The conversion timeline on build to suits is always long. So, you know, we are never banking on those things moving at a at a very fast clip.

And then on the flip side, you know, our financing equation changes as well, dramatically in the last 90 days, and so we went back and had some, you know, difficult conversations with some potential deals to make sure that we were getting the appropriate pricing relative to the way that we are thinking about our in place cost of capital and opportunity cost and all those things. And so, you know, there are a handful of deals that we decided not to pursue any further because it just was not gonna work, and we could not get to a place where it made sense. All that being said, the pipeline is still robust.

We are still seeing good opportunities. there is lots of things that we are excited about and, we hope to have some announcements in the near term to put out there, you know, 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.

Caitlin Burrows:Got it. Okay. And then just-- I saw. It looked like a couple of actually stabilized earlier in the third quarter, so congrats on that. I guess, wondering if there is anything specific to call out on what drove it and if it could be repeatable. But 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.

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

Operator:Your next question comes from the line of Upal Rana. With Key. Your line is now open. Please go ahead.

Upal Rana:Brent. Thanks for taking my question. You know, Kevin, you have some debt maturities approaching and some existing swaps rolling off. How are you weighing refinancing early, extending hedges or retaining floating rates exposure there? And what kind of increase in the all in borrowing cost should we anticipate to underwrite in our models?

Kevin Fennell:Yeah. Look. I think the name of the game on that front has been be opportunistic. You saw us last year go into September. You know, we are always evaluating longer and fixed. Naturally, in this environment, we are staying shorter. I think our floating rate exposure is probably bouncing between 20 to 30% of total debt. And that is probably not a long-term target. And so, you know, with the swaps rolling as well, there is the incremental exposure to SOFR and as it relates to sort of total headwinds, you know, that is 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 1 differently. But you know, the opportunistic piece for us is still in play. I am thinking about longer and fixed. So, you know, 7- to 10-year options at, call it, 100 over to 125 over as the marginal debt cost is not an unreasonable assumption. But in the very near term, would say staying shorter and floating is probably a clearer answer.

Upal Rana:Okay. Alright. That. that is helpful. And then maybe on Triborough, you know, I am sure you have had plenty of conversations with potential tenants. Is there anything you can share on some of the conversations you are having, you know, is there any particular use they are looking for or asking for as it relates to the property or lease? Or anything that they are concerned about from the executive order that is required?

John D. Moragne:Conversations have been instructive. You know, I would continue to characterize them as very preliminary. You know, people do not wanna 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 is why we are 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, you know, the thing that we have heard and we continue to see is that demand is not dropping.

You know, we are continuing to hear from tenants that they have real demand for these types of projects, and they are looking for these types of assets. 1 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 do the horizontal site level work on this.

So 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 starting construction on the substations, the initial buildings that would be a part of phase 1, and getting to a delivered power sometime in 2028 you know, 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 preliminary basis.

Upal Rana:Okay. Brent. 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.

Linda Tsai:Versus 90 days ago, has the general line of thinking with regard to the ideal outcome for Project Triborough change given the shift in your cost of capital?

John D. Moragne:Yeah. I mean, ideal outcome in terms of the-- you have 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. So if, you know, things do not move forward the way that we hope that they will or expect them to, we can always pivot back to, you know, 4 million-square-foot industrial facilities and there has been, you know, continued interest from industrial build to suit in that market. So we feel good about that.

And then as you have heard us say for the last year, you know, our if it moves forward, if it is something that can move forward as a data center, you know, we are looking at either selling it or, you know, continuing to move forward with it as a power shell construction. I think the clarity that we have had over the last 90 days is really in terms of if it does move forward as a data center, there is really 2 paths. We are either selling it or we are gonna find a private capital solution to fund it.

You know, 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 is kind of off the table at this point. Both in terms of the size and in terms of what we have seen from the market in the last 90 days. When you move forward with a project that is going to be in the multiple billion dollars on a project budget basis, you gotta have some certainty around where that money is gonna come from. I do not have a lot of confidence right now that we would be able to do that from the public equity markets.

So we are either selling this project, or we are gonna find a private capital solution for it. Are there a lot of interested parties from the private capital solution perspective? Yeah. there is 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.

So I think that, you know, with projects that are looking at delivering in, you know, back half of 2027 and into 2028, like you are talking about with the initial, phase delivery on power for Project Triborough, and similarly situated ones where they have done the work and the site level that Ryan and his team have been continuing to advance. There is. there is ample capital that is out there looking to be deployed into projects just like this.

Linda Tsai:Thanks.

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

Michael Goldsmith: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 1 tenant and whether there is any accrued rent exposure associated with that tenant? Thanks.

Kevin Fennell:Yeah. Those 2 things are actually unrelated. The accounting around that rental income write off is more about situation where we have some small industrial assets. We are working with a tenant to move out by the end of next year. And so the original lease term there was 11 years. Is simply a function of shortening that lease term. And we will work through them. Little to no impact this year and next year around that event. And so those are sort of 2 separate occasions.

Michael Goldsmith:Got it. Thanks for that. And then you mentioned a 111% recapture rate on the 2026 and 27 renewals completed year to date. it is still about 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? You know, how the negotiations that have been going so far? Thanks.

John D. Moragne:Negotiation is going well. Know, Mike, as you know, we start working on a lot of these lease roles. You know, 2 to 5 years before we get to the end of the term. So we usually have a pretty decent idea of where those things are going to go, if we are gonna be releasing to a new tenant, you know, exercising an option, you know, the tenant exercising an option, having a vacant sale where we are looking to redevelop or do something different. So the team was working on 2027, you know, as early as 2024 and 2025. So we feel pretty good about where we think all of these are gonna head.

I would love to say that you should expect a 111%. But I think if you look back historically, our, you know, low to sort of mid 102% to 104%, 105% is really a bit more in line with sort of reasonable expectations. Often, we are gonna be in a situation where the tenant is going to have the option to renew at, like, 2% or 3% or whatever it is. And so we can come to a better solution from there, that is great. But they always have the fallback of hitting their option and continuing to hold that sort of, increasing from whatever sort of standard lease increases.

So a 111% is great, and kudos to our team for being able to find some really great and positive outcomes on our lease rolls for this year. And, we hopefully, we continue to see opportunities to do that in some discrete situations in the future. But you know, I think it is more in that low 100% range that we should be setting expectations around.

Michael Goldsmith: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.

Ryan Caviola:Thank you, and good morning, everyone. Maybe 1 on Broadstone's appetite to do more data center developments in the future. Obviously, great news on, you know, great updates on 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. Do you think you can do it that way? And just the complexities associated with these offset by the attractive yields. Thanks.

John D. Moragne:Yeah. I mean, we have right now, I think our appetite is really squarely around Colorado 2.0. We would love to see that come through. We hope that is something that we will see in 2027. We have got fantastic partners on Triborough and Sanzone and Emergent, and, you know, they, of course, are continuing to look at other opportunities around the country. Whether or not there is a role for us to play, I think, is up in the air. These are very large capital commitments. They are very large projects.

And so the ability for us to play a role will be very project dependent on any of those things, but there is nothing that, you know, we are talking about right now that is material enough for us to be, you know, sort of talking about. But, really will be very project dependent, and, you know, we will see where things go. But like I said, we got great partners. We are very pleased with what we see in Colorado and what we are working on with Triborough.

Ryan Caviola:Got it. that is helpful. And then, you know, with midterms next week, figured I would throw in 1 on onshoring. I know you have 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, and does next week's outcome affect any of that? Thanks.

John D. Moragne:I think there is certainly a political component to it. You know, we expected after sort of Tariff Day and some of the efforts by the administration to bring more manufacturing into the United States to drive some additional tailwinds for industrial, and I think that is playing out. You know, I do not know if it is playing out to the same degree that maybe everyone expected at the same. At the outset of this. But then I think beyond the political sort of component to that, there is also sort of 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, you know, provide revenue for their businesses and not run into the problems that we have seen from sort of geopolitical issues or from sort of pandemic era style COVID supply chain issues. So there is both I think, the political tailwind that helps a little bit, and then I think there is more of a secular market tailwind where people are looking at, you know, business are looking at their supply chains and are wanting to make sure that they are as resilient as possible here domestically.

And not having to rely as much on, you know, international shipping lanes.

Ryan Caviola: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.

Ronald Kamdem:Great. Just want to go back to the pipeline, and the thinking of advanced manufacturing or data centers and so forth. 1, I was just curious in terms of are there any sort of larger deals, larger conversations? That are happening on that front? And then and then 2, some comments on construction costs. I know you guys do hedge a lot of it, but we have heard steel. We have heard other stuff, but I would love to hear some comments on construction costs. Or any parts or any shortages? Thanks.

John D. Moragne:Yeah. So, you know, I think I would point back to my earlier answer on sort of the advanced tech. Sort of data center stuff. You know, we are kind of full up with what we are working on right now. You know, we are always open to new accretive opportunities in the future, but we are very pleased with where we-- where we have Colorado and where we have Triborough. You know, there are some larger build to suits outside of that context that we are continuing to look at, and hopefully, we will be able to land a few of them. But, you know, time will tell as we can work through that.

On a construction cost basis, construction costs are certainly up but that is just provided an opportunity to make sure that we are pricing things appropriately and that rents are getting set at the right levels. Depending on if you are talking about hard costs or overall project budgets, maybe we are somewhere in the 10% to 15% increase at this point and so that. And as I said, just sort of necessitates conversation around how are we thinking about pricing this, how are we thinking about rents, how are thinking about residual values and cap rates on the front and back end of these things.

So it is a dynamic place to be right now as it is changing very quickly, and, you know, we are making sure, you know, referring back to my comments earlier on sort of the pipeline itself that, you know, as our tenants are taking time to think through whether or not these projects are the right thing for them to do, we are doing the same You know, not every project is gonna make sense, and so making sure that we are prudently allocating the capital that we have to the projects that we think are gonna be the most accretive and earnings powerful in the future, is where we are spending our time and attention.

Ronald Kamdem:that is helpful. And then just in the 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 B and L here just some thoughts on just regular acquisitions as well. Thanks.

John D. Moragne:Yeah. We have been very selective for a long time. We will continue to be. there is 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 are in contact with all the brokers and making sure that we understand what is happening if there is ever a good deal that is out there, we wanna make sure that we are part of it. But our strategy is to really focus on these long term value creating build to suits, and then finding opportunities to you know, find direct off-market deals with our existing relationships. That we can deploy capital more accretively.

And if you are looking at an environment where, you know, 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. You know, maybe that shakes out a few direct deals for us if people are looking for surety of execution as opposed to, you know, having to work their way through a more heavily marketed process. So we are hopeful.

Ronald Kamdem:Great. that is it for me. Thank you.

Operator:Your next question comes from the line of Mitch Germain with Citizens JMP. Your line is now open. Please go ahead. Your line is now open. Please go ahead. Your next question comes from the line of Michael Gorman with US Bancorp. BTIG. Your line is now open. Please go ahead.

Michael Gorman:Yeah. Thanks. Good morning. Maybe just taking a different perspective on the Colorado project and project Triborough. Obviously, these are large developments, large projects, but maybe outside the capital cost, like, pretty quickly, they scale from an income perspective, right? So if my math is correct, kind of straight-line, Colorado comes online at about 7% of ABR. You sound optimistic about building 2 there and then whatever the outcome is for Triborough. How do you think about exposure to this kind of new category of tech just from a portfolio management perspective as these kind of projects continue to move forward?

John D. Moragne:Yeah. Great question. We spend 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. You know, our Colorado tenant is going to be, you know, 6% or 7%, depending on sort of how we think about our forward other 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 wanna execute on, you know, 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, you know, I think we have to think a little bit differently with Tribro. And that maybe harkens back to, you know, my commentary around how we are thinking about financing it. Know, we can do Colorado. And, if we end up being lucky enough to have Colorado 2.0 move forward, know, being in that 6% to 12% range is fine. I am not worried about it with that tenant and that project. Project Triborough is its own thing. it is a bit of a supernova.

And as I said, based off of the way that we are currently thinking about how you fund that project, we are either are either selling it and then taking those proceeds, delevering, and then redeploying it to our core verticals. Or we are gonna find a private capital joint venture solution for it. And at that point, you know, in terms of tenant concentration, it will be far lower than what it would be if thinking about it more of on a on a headline fully on balance sheet number.

Michael Gorman:Got it. That. that is helpful. And then maybe just pivoting for the other growth avenues, whether it is revenue generating CapEx or maybe traditional sorry, transitional capital or anything, what is the financing environment like for your tenant base I imagine they are 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 is helping with expansion or CapEx?

John D. Moragne:Yeah. You know, their, you know, their cost of capital and financing opportunities are changing sort of in step with the way that we are thinking about it. You know, there are places where depending on, you know, are they pricing off a 10 year, are they pricing off a sofa, you know, there is been significant differences in the volatility there. You know, the 10 year, depending on the day, is up whatever, 6 or 80 basis points relative to the beginning of July. SOFR's up do not know, it was 20 the other day or something like that.

So depending on how you are thinking about pricing these things, if you are doing an ABS facility, we are doing something else. You know, there are alternatives, but, you know, the build to suit structure you know, 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 is going to be out there. And so we continue to have constructive conversations about deploying capital into all those potential verticals.

Michael Gorman: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.

Eric Borden:Brent. Thanks for taking the follow-up. Just on project Dryboro 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 and infrastructure requirements make those paths Make those paths mutually exclusive?

John D. Moragne: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 would move forward with an industrial use 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. So, you know, we would not put industrial on it to start. The only way that we are gonna be putting industrial on those 550 acres is if, you know, we end up having to pivot towards the industrial path. But as I said, we are cautiously optimistic that we will have this resolved by the end of the year.

And so, hopefully, then we are moving fairly quickly to the conversations on power and tenancy.

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

John D. Moragne:We would 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 would be very comfortable continuing to move forward, including even going vertical. On some of these assets if we needed to.

Eric Borden:Alright. 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 D. Moragne, for closing remarks.

John D. Moragne:Thanks all for joining us today, and we are 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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