Broadstone Net Lease, Inc. ($BNL)

Hello, and welcome to Broadstone Net Lease's First Quarter 2026 Earnings Conference Call. My name is Emily, and I'll be your operator today. Please note that today's call is being recorded. I will now turn the call over to Brent Maedl, Director of Corporate Finance and Investor Relations at Broadstone. Please go ahead.

Thank you, everyone, for joining us today for Broadstone Net Lease's First Quarter 2026 Earnings Call. On today's call, you will hear prepared remarks from Chief Executive Officer, John Moragne; President and Chief Operating Officer, Ryan Albano; and Chief Financial Officer, Kevin Fennell. All 3 will be available for the Q&A portion of this call. As a reminder, the following discussion and answers to your questions contain forward-looking statements, which are subject to risks and uncertainties that can cause actual results to differ materially due to a variety of factors. We caution you not to place undue reliance on these forward-looking statements. For a more detailed discussion of risk factors that may cause such differences, please refer to our SEC filings, including our Form 10-K for the year ended December 31, 2025, and note that such risk factors may be updated in our quarterly SEC filings. Any forward-looking statements provided during this conference call are only made as of the date of this call. With that, I'll turn the call over to John.

Thank you, Brent. Good morning, everyone. After a strong finish to 2025, we carried that momentum into the first quarter of 2026, delivering 5.6% AFFO growth year-over-year, continuing to execute on our investment strategy and driving strong operational outcomes across our in-place portfolio. We advanced our committed build-to-suit platform through both existing and new relationships, adding over $90 million in new development projects year-to-date, invested over $60 million in a compelling acquisition, realized no bad debt during the quarter and addressed nearly half of our 2026 lease maturities with a recapture rate of 119%, a strong start to the year. Collectively, our results reflect the progress we have made executing on our core building blocks and underscore the strength of our high-quality mission-critical portfolio and the increasing visibility we are providing to long-term sustainable growth. In total, we deployed $171.9 million during the quarter, including $61.2 million in new property acquisitions, $99.4 million in build-to-suit developments and $10.4 million in incremental investments in existing transitional capital projects. As previously announced earlier in the quarter, we added 2 additional build-to-suits, including a new state-of-the-art sub-same-day distribution center located in Sarasota, Florida for Amazon, sourced through an existing developer relationship. We also added a retail development for Academy Sports in Magnolia, Texas, a rapidly growing suburb of Houston that was directly sourced through the tenant and delivered in partnership with a new developer relationship. Continuing our momentum, subsequent to quarter end and as we announced in our earnings release last night, we closed on the land and started funding a new presort battery recycling facility for Tesla that will be located approximately 3 miles from the Gigafactory in Austin, Texas. Together, these 3 build-to-suit investments represent high-quality real estate paired with top-tier investment-grade quality tenants that blend to a first year initial cash cap rate of 7.2% with attractive straight-line yields of 8.3%, a weighted average lease term of 14 years and valuations on each asset that are likely at least 75 to 100 basis points below our development yields, further demonstrating the value creation of our build-to-suit strategy. As anticipated, on April 1, the second of 2 maintenance repair and overhaul hangar for Sierra Nevada Corporation rent commenced, supporting its continued work with the U.S. Air Force replacing an aging fleet of Nightwatch planes. We are proud to be a part of this effort, and I couldn't be more pleased to have both projects reach stabilization on time and under our budgeted project investments, underscoring our team's ability to execute on our strategy and create value for our shareholders regardless of broader macroeconomic uncertainty and frequent market moving headlines. With the completion of Sierra Nevada and the 3 new projects I just walked through, our build-to-suit pipeline remains in a strong position with approximately $382 million of high-quality developments scheduled to reach stabilization throughout 2026 and into 2027, providing visibility to over $28 million of new incremental ABR. Additionally, our opportunity set remains robust, driven largely by existing relationships, and Ryan will go into more detail on our active build-to-suit pipeline in a few moments. During the quarter, we invested $61.2 million in a 60-acre campus, approximately 20 miles north of Boston, Massachusetts, tenanted by Charles River Laboratories, a leading global pharmaceutical and biotechnology contract research organization. The sale-leaseback investment includes a long-term 12-year net lease with initial cash rents of $1.5 million and annual rent increases of 3% and a short-term 1-year net lease with cash rents of $4 million for a blended 9% initial cash cap rate and 4 years of weighted average lease term. We intend to redevelop approximately 48 acres of the 60-acre campus that are subject to the short-term lease in partnership with the Sansone Group as part of our growing build-to-suit development program. We think this transaction is yet another great example of creatively driving additional value. Turning to Project Triboro. As I said during our last call, our goal for 2026 is to advance 3 key work streams related to a potential data center development, zoning, power and tenant identification. All 3 of these work streams continue to advance, and our goals and time lines for each have not changed. To date, we have invested approximately $106 million in the project through our transitional capital platform, maintaining meaningful optionality as we evaluate the best path forward. The highest and best use for this site remains a hyperscale data center campus, and our backup option for a multi-building industrial build-to-suit development also remains intact. We continue to be immensely excited by this opportunity, and by the end of the year, we expect we will be able to decide our best path forward for this project, whether that be a powered land sale, a commitment to stay involved on a powered shell development or a decision to pursue multi-building industrial development and communicate the same to our investors, and I'm confident in our ability to deliver. Ryan will provide a more detailed update in his remarks, and you can expect we will provide relevant updates as we have them. Finally, to cap off a strong quarter of results and execution, I also want to highlight an important milestone for Broadstone Net Lease, our inclusion in the S&P 600 Index. We view our inclusion as providing incremental support for our improving cost of equity capital and believe it will help expand our investor base over time with the increased amount of daily liquidity it will help provide. More broadly, we've been encouraged by improving market sentiment around REITs and the progress we've seen in our equity multiple. As our cost of equity improves, it expands our opportunity set and enhances our ability to fund growth in a disciplined and accretive manner. As you saw in our earnings release last night, we raised $71 million of equity under our ATM during the quarter at a weighted average price of $19.13, bringing total gross proceeds to approximately $82.5 million on a forward basis at a weighted average price of $19.02. Going forward, we expect issuances to remain measured and opportunistic as we evaluate our cost of capital alongside our investment opportunities. With that, I will hand the call over to Ryan and Kevin to take you through some of these topics in greater detail.

Thank you, John, and thank you all for joining us today. As John highlighted, the first quarter clearly demonstrated the effectiveness of our strategy and the strength of our team and portfolio. In today's environment, we believe creativity and structuring is just as critical as sourcing. Our focus is on transactions where thoughtful structuring can materially enhance outcomes, driving higher yields, embedding growth and protecting downside through multiple exit pathways. A strong example is the $61.2 million investment we completed this quarter with Charles River Laboratories in Wilmington, Massachusetts. The transaction involves the acquisition of a 60-acre campus, approximately 20 miles north of Boston, delivering both a long-term accretive sale leaseback and a strategically structured short-term investment with meaningful future value potential. The 2 leases together generate approximately $5.5 million of first year cash rent, representing a blended initial cash cap rate of 9%. As John noted, the first lease is a 12-year net lease with initial annual rent of $1.5 million and 3% annual rent escalations, nearly 100 basis points above our current and increasing weighted average rent growth. The second lease is a short-term lease with a term of 1 year covering approximately 48 acres of the campus. This shorter lease duration was intentional, allowing us to preserve near-term cash flow while maintaining flexibility to unlock value through redevelopment. Specifically, the site has the potential to support up to 440,000 buildable square feet of industrial development. The campus benefits from a prime infill location with access to a population of more than 4 million people within a 30-mile radius, along with strong connectivity to major transportation corridors and labor pools, factors we believe underpin sustained long-term demand. Importantly, we did not underwrite this as a single outcome investment. The 48-acre parcel provides flexibility for multiple build-to-suit opportunities, effectively extending our pipeline of committed development projects. While we actively pursue this upside, we are supported by a strong underlying land value and the optionality it affords, reinforcing our conviction in this investment. Overall, this transaction highlights our ability to leverage relationships and apply a creative solutions-oriented approach to structuring investments to deliver attractive initial yields while positioning us to generate additional long-term value. As a broader update on our development pipeline, following the early and under budget delivery of the 2 MRO facilities for SNC, we currently have 11 in-process developments, representing approximately $382 million of total projected investments. These projects are expected to generate strong initial cash yields of 7.3% and weighted average straight-line yields of 8.4% supported by a weighted average lease term of 12.9 years and annual rent escalations of 2.5%. Importantly, these tenant-driven developments are structured to mitigate traditional development risks, including construction timing and cost pressures. As we've discussed, build-to-suit development remains a core pillar of our differentiated strategy and a key driver of embedded growth visibility. We aim to consistently maintain an active, committed build-to-suit pipeline in the $350 million to $500 million range, and we continue to see a robust set of opportunities to support that run rate. Currently, we are actively evaluating approximately $1.3 billion of build-to-suit opportunities across both existing and new relationships, reinforcing our ability to drive visible long-term growth. In the stabilized transaction market, we continue to see steady deal flow, including several larger portfolio opportunities, particularly within industrial. That said, we remain disciplined. In many cases, seller pricing expectations, particularly around cap rates, do not align with our view of the underlying risk profile, and we will not pursue volume at the expense of quality. Dispositions remain an important component of our capital allocation strategy. On a routine basis, we use dispositions to refine the portfolio and proactively manage credit, lease rollover and sector exposure. Opportunistically, when market pricing allows us to recycle capital on an accretive basis, we will act. This was reflected in our $12 million disposition during the quarter at a 5.6% cap rate on an industrial asset with 7 years of remaining lease term. Subsequent to quarter end, we completed the sale of 3 additional assets for total gross proceeds of $54.8 million, including 2 opportunistic dispositions totaling $50.4 million at a weighted average cap rate of 6.3% as well as the sale of a small vacant asset as part of our ongoing portfolio management. Turning to our in-place portfolio. Same-store performance remains strong with 2.8% year-over-year growth driven by contractual rent increases and successful re-leasing activity in prior periods. At the start of the year, we had 22 leases scheduled to expire in 2026. We have already addressed half of those leases, achieving a weighted average recapture rate of 119% and an average new lease term of 6 years on extended leases. For the remaining 11 leases, representing approximately only 2% of ABR, we are well underway in our leasing efforts and expect continued positive outcomes. Finally, with respect to our watchlist, activity this quarter was relatively uneventful, reflecting the strength of our portfolio and proactive asset management efforts in recent years. As noted last quarter, Gardner-White Furniture assumed all 6 locations previously occupied by American Signature as part of its bankruptcy process. Since then, we have executed a new 10-year master lease across all 6 sites, further enhancing what was already a strong outcome. Now shifting our focus to Project Triboro and building on John's earlier update. It may be helpful to frame where we are in the overall development life cycle. Over the past several months, our efforts have been focused on advancing the site's foundational elements while simultaneously progressing key work streams across power, zoning and leasing. This coordinated approach is intended to derisk the project, preserve flexibility around ultimate use and position us to respond efficiently as milestones are achieved and market opportunities continue to evolve. We are actively advancing the site to a pad-ready condition, including the installation of erosion and sediment controls, clearing and grubbing, mine remediation and mass grading. This also involves completing the core civil infrastructure required to create developable pads, such as storm water management systems, internal access roads and underground utilities, universal site work that must be completed regardless of whether the site is ultimately developed as a hyperscale data center campus or as multiple industrial buildings. We are approaching the site work in a deliberate phased manner, carefully sequencing activities to align with the project's multiphase nature and preserve maximum flexibility as we pursue value creation for our shareholders. On the power side, this continues to be one of the defining attributes of the site. Importantly, the 1 gigawatt power commitment is supported by existing generation capacity, and we are not reliant on future power generation build-out to establish that supply. Our current focus is on coordinating the infrastructure required to transmit and deliver the power to the site as well as developing the on-site infrastructure necessary to receive it as it becomes available. In this regard, PPL plans to construct a new substation and switchyard along with approximately 8 miles of new transmission lines. These upgrades are intended to support broader load growth and new customer demand, including Project Triboro while also enhancing overall system reliability. PPL currently anticipates commencing construction in the summer of 2027 with completion targeted for the summer of 2030. At the site level, we plan to develop a dedicated substation to receive the delivered power, which we currently anticipate the first phase of energization consisting of 300 megawatts to commence between Q4 of 2027 and Q1 of 2028, with the additional 700 megawatts to follow thereafter. We remain in close and ongoing coordination with PPL and are actively working through the required electric and construction service agreements necessary to advance Project Triboro. With respect to zoning, in recent months, Olyphant Borough has considered amending its zoning ordinance to expressly allow data centers in the CM-2 District, where Project Triboro is located. We understand Pennsylvanian municipalities must accommodate all lawful land uses somewhere within their boundaries, including data centers, but may regulate them through standards such as siting rules, setbacks and required studies and reports, which are typical for real estate development. As drafted, Project Triboro aligns with the framework contemplated by the proposed amendment. At its most recent meeting, Borough Council chose not to adopt the amendment as written and instead started a process giving it up to 180 days to address data centers in the ordinance. We will continue working with the council on the amendment during this period. To protect our rights in the meantime, we filed a zoning permit application last week and formally asserted that the proposed data center campus is permitted by right under the current ordinance and may proceed as planned. Accordingly, despite heightened attention on data center development, we remain confident in our path forward and do not expect any impact to our anticipated 2026 time line. Finally, with respect to leasing efforts, we are currently engaged in active discussions with multiple hyperscale users that have expressed strong interest in Project Triboro. We look forward to providing updates as these discussions progress and as we gain greater clarity on potential structures and timing. As John has consistently stated, our objective is to have clarity on the optimal path for Project Triboro by the end of 2026 based on the progress achieved relative to several milestones, including zoning, power and leasing, and remain focused on maximizing shareholder value while preserving optionality. With that, I will now turn the call over to Kevin.

Thank you, Ryan. During the quarter, we generated adjusted funds from operations of $76.9 million or $0.38 per share, representing a 5.6% increase over Q1 of 2025. Results benefited from strong same-store rent growth of 2.8% and from recent investment activity and build-to-suits reaching stabilization. The quarter's results also notably benefited from no loss rent realized during the quarter and lower nonreimbursable property expenses. G&A remains well controlled with core expenses totaling $7.8 million during the first quarter. While this represents an increase of 5.4% year-over-year, this change was largely impacted by onetime or timing-related expenses, including employer tax expense for stock vesting and professional services. We remain well on track to achieve our G&A guidance. With respect to the balance sheet, we ended the quarter with pro forma leverage of 5.8x, unchanged quarter-over-quarter. At quarter end, we had approximately $82.5 million of unsettled equity and nearly $600 million available on our revolver. With limited debt maturities through the first half of 2027, we maintain sufficient financial flexibility as we look ahead. Last week, our Board of Directors elected to maintain our $0.2925 dividend per share payable to holders of record as of June 30, 2026, on or before July 15. Lastly, we are maintaining our 2026 per share guidance range of $1.53 to $1.57 with no changes to our key assumptions. Despite no bad debt in the first quarter, we are also maintaining our full year assumption of 75 basis points of lost rent within our 2026 guidance and plan to revisit this assumption throughout the year. It's always worth reminding everyone that our per share results for the year are sensitive to the timing, amount and mix of investment and disposition activity as well as any capital markets activities that may occur during the year. Please reference last night's earnings release for additional details. And we will now open the call up for questions.

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

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

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

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

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

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

Yes. This is John. I think it's a great example of the way that our strategy can unlock value by creatively structuring solutions for our developer partners and clients. This isn't the first time that we've done something that's a little more creatively structured with Sansone. We did it with Sunset Hills. We're doing it with Triboro. We have it with Charles River, and we have other things in the hopper that we're considering with them. They continue to grow as a fantastic partner for us with our business as we're helping them grow theirs. This project was particularly attractive to us because there were certain things that needed to be solved for the overall transaction to move forward for Charles River. They needed a long-term sale leaseback for the assets that they were looking to double down on and continue to invest in. And then they had some assets that they were looking to move on, but they needed a transition period for. This is a premier location in the Northern Boston market right off of I-93 in that I-93, I-95 corridor, strong industrial area. We've underwritten this, as you heard from Ryan, the 440,000 square foot of industrial build. It's probably 4 buildings, somewhere in the, give or take, 100,000 square foot. You're talking shallow bay industrial, which is perfect for that space. Our cost basis is slightly below market. So we feel like if we did need to get out of this, there's going to be interest in the site where we're going to be able to make some money on the back end, whether we develop it or not. But our intention is to develop this. We think there is a good opportunity for build-to-suit in this area. We've already had interest from one tenant for a build-to-suit on site. The way we've penciled this out is we're looking at yields probably on yield to cost in that low to mid 7 cap range. And on a stabilized basis, you're going to have values in these assets in the mid to high 5 cap range. So this potentially is a homerun for us. So we're very excited about it. But we also make sure that as we underwrote it, we found good optionality. So to answer your question about appetite for more, if we can find deals like this, we've got all sorts of appetite for it, because this is the place where our strategy really shows the value of the build-to-suit, focusing on real estate operation and investment and not just doing the commodity net lease trade that we have seen often in other places.

Our next question comes from Eric Borden with BMO.

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

Yes. So the 180 days is up to. Our understanding is that the council wants to move this forward as quickly as possible, although it was prudent for them to take the 180 days. I think it's important to go back to sort of what Ryan walked everyone through in terms of how municipal and zoning regs work in Pennsylvania. Pennsylvania does not allow a prohibition of any type of use within any municipality. You can certainly set the standards, as Ryan walked you through, for setbacks and for studies and things like that, but there is nothing that can be absolutely prohibited. We had already worked with the council on the amendment that was in front of them for approval in earlier part of April. Project Triboro fits squarely within what they were considering. We have all the confidence in the world that, that's where this will land at the end. But to make sure that we are pursuing all potential opportunities to maximize the value and to push the time line, we have submitted for a conditional approval at the same time as we are going to work with them and hope that the council will be able to push the amendment process a little bit further. There are folks in addition to us who have interest in that site and the zoning ordinance being pushed forward. So there's other remedies that are being sought by other folks that have interest in land in that particular park besides us. So it does not change our time line. As you heard Ryan say, by the end of 2026, which is what I've been saying for a long time, we're looking to have zoning, power and tenant interest solidified so we can make the right decision to maximize value. And sometimes real estate development work can be a little messy, zoning in particular. So none of this is out of the ordinary. None of this is a problem. We'll work through it over time, and we expect to stay on the time line that we've announced without any hiccups.

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

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

Our next question comes from Jay Kornreich with Cantor Fitzgerald.

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

Yes. We're certainly seeing increased transaction activity, more portfolio deals, more industrial portfolio deals. So right down the middle of the fairway for things that we're looking at. We're having an increasing number of conversations with our relationships, so tenants, sponsors, things like that and finding good opportunities. We're being really disciplined about where we deploy capital. There wasn't a ton that we needed this year to hit our guidance range from a growth standpoint. We are allocating a lot towards the build-to-suit program. As everyone knows, that's where the focus is for us for the long-term derisked attractive value-creating growth into the future. But there are incremental deals that are out there that are interesting to us. We're spending time on them. And just like last year, we're starting at a place where our guidance and our assumptions around this are relatively conservative in terms of what we think we can do. And as the opportunity set starts to form and as we have a better view on what the longer-term cost of capital is going to be for us with the better and more constructive stock price, hopefully there's an opportunity for us to do more and potentially push that guidance towards the back half of the year.

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

Yes. We feel very good about hitting that target. We've got a lot of opportunities we're evaluating right now. I think it's a handful of things. One, I got to give all the credit to the team. Ryan and Will Garner, Sam DeLemos, Ryan Rahaeuser are the folks that are really driving the build-to-suit development process for us, are hitting the ground and really making a lot of phone calls, reaching out to their contacts, finding new relationships, really honing in on existing relationships, getting views of entire pipelines of deal flow to see what was out there. And then it's also that we're getting some calls. People -- our name is getting out there. People have heard what we've been able to do. The referral network is great. You do a good job for one developer and you provide a solid outcome, they're more likely to recommend you to somebody who is in a different geographic area or operates in a different type of retail or industrial space. So the team is working really hard to build out this pipeline. And then we're also getting a little bit lucky as the name gets out there and the space expands. And people are starting to call us as well. So all of those things are putting us in a great spot to execute on the strategy and to hit the numbers that we plan.

Our next question comes from Caitlin Burrows with Goldman Sachs.

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

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

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

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

Our next question comes from Ronald Kamdem with Morgan Stanley.

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

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

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

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

Our next question comes from Michael Goldsmith with UBS.

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

Yes. I think it comes on both sides of the barbell for us. There's the risk mitigation type sales, which hit a number of things you talked about in terms of whether it's tenant exposure, real estate fundamentals, underlying credit, maybe there was a change of control that we didn't particularly love. All sorts of stuff that could put something noncore, as you mentioned, into the bucket of -- one side of the barbell that we're just looking to reduce that exposure over time. And then as Ryan highlighted in his comments, we're also very happy to do some cap rate arbitrage. And if there's an opportunistic sale that we can have, then we're more than willing to do it. We've got a couple of the deals that we've done this year that were the result of unsolicited offers to sell at fantastic cap rates. And so part of our job is to make sure that we're accretively recycling our real estate. And so when we can do that and we can put that back to work in a fashion that's going to help us grow our earnings, we're very pleased to do it.

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

Yes. I mean -- so we don't have a huge exposure. I want to say it's been like a 2-ish percent range, maybe mid-2. Just a couple of handful of tenants in there. We certainly would be open to reducing that exposure over time. I mean if you look at consumer data over the last couple of quarters, home furnishings has been roughly flat in terms of sale and foot traffic. So it's not exactly growing, but it's not shrinking the same way that it was for a period of time once the sort of post-COVID boom fell off and they all started to experience a little bit of difficulty. But we're very pleased with the resolution for American Signature with Gardner-White. We think they've got a great team in place and a great business model that they're going to be pushing through with our stores in addition to a handful of additional stores that they got from the American Signature bankruptcy. So we feel like we're in a great spot with that new master lease and 10-year term, but it doesn't mean that we wouldn't look to reduce that over time depending on where we see demographic trends and sales trends and things going.

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

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

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

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

Yes. I mean the total addressable market for us is continuing to increase. Obviously, there's sort of the nationwide market, but then we're thinking more in terms of what we are seeing and what we have an opportunity for, and that's been growing quarter-over-quarter since we initiated the program. There is increased development activity. I think people are continuing to look for opportunities to bring onshore, nearshore to increase the sophistication of their facilities. We've seen it with some of the work that we've done as people are getting out of older dated facilities and looking to put in narrow racking, robotics, all the things that they can do with a build-to-suit that they can't necessarily do with just walking into a blank slate on a spec. And then I think even you saw with today's GDP numbers that even though the consumer is a little bit more muted than people would like, you are seeing a huge increase in investment on the business side with 10.4% growth on a period-over-period basis. So people are looking to put money to work. They're looking to get into the right types of buildings for their business. They're looking to make investments into the equipment that's going to help them grow their businesses as well. So we see a huge amount of opportunity here. And we're very glad that we got into this space early when we did and have started building the reputation that's allowed us to execute the way that we have.

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

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

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

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

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

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

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

Yes, mostly driven by industrial. A lot of times, the retail assets that are going to roll are going to have a fixed rent bump as the way they go through, but we've got a little bit more of ability to mark-to-market on the industrial side. We aren't looking necessarily at the assets that have 10-plus years of term left on a mark-to-market basis. I mean, that's anyone's guess at this point what's going to be rent in those periods of time. We do look at it, though, for the next 2 to 3 to 4 years. We've got our re-leasing pretty much under control already for 2026. We have a little bit of a heftier volume for 2027, but we started working on those last year. And so we have a view on the mark-to-market and then also looking out into 2028 and 2029. Generally speaking, without putting a number on it, we feel very good that on an aggregate basis we're in a good spot from a same-store growth standpoint for the assets that are going to re-lease moving forward.

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

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

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

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

The next question comes from Michael Gorman with BTIG.

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

So a direct deal all the way. This was not broadly marketed. This was one that we partnered with Sansone to find a solution for them and for Charles River to make this work in an attractive way for us. These are the types of deals that we think that we absolutely excel at because there's a lot of other folks that would look at something like this and just say no and they would walk away because it would involve a little bit more work and it's a little bit more outside of, as I said, sort of the commodity net lease business that prevails in a lot of other places. So we absolutely would look for more opportunities like this. We think we've built a good reputation on someone who can creatively structure deals that work for everybody but still provide a great way for us to grow our earnings and find ways to deploy capital to interesting places that can provide value in the future. So this isn't something where you necessarily can find opportunities like this just on the listings that are out there from brokers. These are relationship-based type deals and these are the types of deals that we believe are going to come through our network. And we hope to be able to find more, because if this plays out the way that we've underwritten and the way that we believe, it's going to be a heck of a success for Broadstone.

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

I'll take the second part first. I think it's a little bit more about deal flow and some of the relationships that we have. Often, our partners will specialize in one particular type of thing versus another. And so you're just going to naturally see more of a particular industrial type than something else if you're working with the same developer or the same sponsor or seller, what have you. We saw that with food processing as we grew that over the last few years. We're working with sponsors that did a lot of work in food processing. So it naturally became a bigger percentage. In terms of the mix, we have been 70-plus percent allocated towards from an investment dollar standpoint in industrial since like 2018, 2019. So not really any difference in the overall strategy the way that we're allocating capital and deploying it. So I would expect over time that you should see our industrial exposure grow into that 65% to 75% as we work our way down on office and the remaining buckets of clinical health care and things. You should also expect retail and restaurants to end up in that like 25%, 35%. That would be the mix that I would expect in the near to medium term for Broadstone going forward.

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

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

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