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

Thank you, everyone, for joining us today for Broadstone Net Lease's Third Quarter 2025 Earnings Call. On today's call, you will hear prepared remarks from Chief Executive Officer, John Moragne; President and Chief Operating Officer, Ryan Albano; and Chief Financial Officer, Kevin Fennell. All three will be available for the Q&A portion of this call. As a reminder, the following discussion and answers to your questions contain forward-looking statements, which are subject to risks and uncertainties that can cause actual results to differ materially due to a variety of factors. We caution you not to place undue reliance on these forward-looking statements. For a more detailed discussion of risk factors that may cause such differences, please refer to our SEC filings, including our Form 10-K for the year ended December 31, 2024, and our Form 10-Q for the quarter ended March 31, 2025, and note that such risk factors may be updated in our quarterly SEC filings. Any forward-looking statements provided during this conference call are only made as of the date of this call. With that, I'll turn the call over to John.

Thank you, Brent, and good morning, everyone. To start, I would like to thank everyone who joined or listened to our second quarter's earnings call. It was an important one for BNL, and my prepared remarks were certainly longer than usual, but there were important messages I felt needed to be conveyed, and I appreciate the positive feedback it received. Given our lengthier remarks last time and our upcoming Investor Day on December 2, our prepared remarks for this quarter are intentionally briefer. I'm excited to announce another strong quarter of results that reflects the continued success of our differentiated growth strategy as well as the deep expertise and strategic acumen of our team. We have consistently operated in a way that should answer any questions investors have about this team, our strategy or our ability to deliver attractive long-term value for our shareholders. We are proud of what we have accomplished so far but are no less determined to push BNL even higher. This quarter, we invested $204 million in an attractive pipeline of accretive acquisitions and development projects, collected 100% of our rents, resolved both the At Home and Claire's situations with all leases assumed and no bad debt incurred from either and secured 1.2% sequential quarterly growth in contractual rental obligations, which helped drive a 5.7% increase in quarterly AFFO per share when compared against the third quarter of 2024. As a result of our strong execution, and as you saw in our release last night, we are raising our full year 2025 guidance to $1.49 to $1.50 of AFFO per share, representing 4.2% to 4.9% growth for the year. On a year-to-date basis, we have invested $552.6 million, including approximately $353.4 million in new property acquisitions, $150.2 million in build-to-suit developments, $40.7 million in transitional capital and $8.3 million in revenue-generating capital expenditures. We are securing accretive yields in both our regular way acquisitions and in our build-to-suit pipeline. For our new property acquisitions in the third quarter, the weighted average initial cash capitalization rate was 7.1%, and with strong lease terms and top-tier annual rent increases, we are achieving a weighted average straight-line yield on those acquisitions of 8.2%. The estimated returns in our build-to-suit pipeline are even better, standing at 7.5% on an initial cash capitalization rate basis and 8.9% on a straight-line basis. Our build-to-suit program continues to mature, providing us with long-term high-quality derisked value-creating growth that, as you've heard me say repeatedly, provides insight into our portfolio's embedded AFFO growth profile, not only in the current year, but for several years into the future. We have started 7 different build-to-suit developments so far in 2025 with budgeted deployment of $256.7 million. In addition, we have multiple new projects under executed letters of intent and have invested approximately $41 million in the form of transitional capital, yielding 7.8% on the first two phases of an exciting prospective development project you will hear more about from Ryan in a moment, with the third and fourth phases scheduled to close in the next couple of weeks for an additional approximately $44 million. We are also seeing a host of attractive opportunities in our build-to-suit pipeline that gives us lots of confidence heading into the end of the year and the first half of 2026. Taking all of that together, we are well on our way to hitting our $500 million goal for 2025, setting us up for continued success in 2026 and beyond. Looking ahead, we believe our industrial-focused strategy and differentiated build-to-suit program will provide us with a substantial platform for attractive growth due to several long-term trends and favorable market dynamics. E-commerce remains a steady tailwind with continued investment in distribution and logistics assets geographically focused on major logistics hubs like Dallas-Fort Worth, Atlanta, Chicago, as well as the Northeast, all of which are reflected in our growing pipeline of industrial build-to-suits. On the manufacturing side, reshoring continues to pick up momentum, and we are seeing more opportunities resulting from this trend, both in our investment pipeline as well as our existing portfolio. Reshoring should also have beneficial knock-on effects for us as those investments will drive additional demand for logistics and distribution facilities nearby. We feel good about where we are headed and believe we are well positioned to take advantage of the value-creating opportunities our strategy provides and this team produces. Turning to the capital markets. This past quarter saw our successful return to the investment-grade bond market as we completed a public offering of $350 million of 5% senior unsecured notes due in 2032 and nearly 7 times oversubscribed. This execution and our results provide further validation of the strength of this company and the appeal of this strategy. On the equity front, we continue to evaluate issuing new shares versus accretive capital recycling opportunities to support our growth plans. With the last couple of days aside, with solid price appreciation this year, our shares are trading at more constructive levels, reflecting both improved market sentiment about BNL and growing investor confidence in our long-term strategy. Recent share price appreciation paired with a strong investment pipeline and supportive debt capital markets may facilitate more activity for us in the equity capital markets, likely through tapping into our available ATM capacity. At the same time, we remain focused on maintaining rigorous discipline around our cost of capital to ensure that any new investments or capital raises are accretive to shareholder value. We will continue to evaluate opportunistic dispositions where we can recycle capital from mature or noncore assets into accretive investment opportunities that align with our strategic priorities. Our build-to-suit assets are an important part of this balanced approach. We can either choose to hold these quality assets as more traditional long-term net lease investments or monetize them at attractive stabilized valuations once completed. We target a spread between our development yield and stabilized value of more than 100 basis points, representing an additional layer of value creation, a rarity in the net lease world that we expect to recognize either in the form of NAV accretion or through positive capital recycling upon a sale of the asset. I believe that balancing proactive equity capital markets activity with prudent capital recycling through opportunistic dispositions will position us well to enhance our portfolio quality, strengthen our balance sheet and drive sustainable long-term returns for our shareholders. We have come a long way since this management team was put in place. We have delivered total shareholder return of more than 30% since the beginning of 2023, placing us in the top tier of the net lease space over that time. And year-to-date, we've delivered total shareholder return of nearly 20%. These are incredible returns and reflect a lot of hard work and the value that this team delivers. Despite those returns, however, we still trade below average on an earnings multiple basis. So, to put it plainly, we believe there's still a lot of share price valuation upside built into Broadstone Net Lease, and we look forward to capturing that upside and delivering on the promise of this team, this strategy and this portfolio in the coming quarters and years. With that, I will turn the call over to Ryan for more information on our investment pipeline, strategy and in-place portfolio performance.

Thanks, John, and thank you all for joining us. Today, I'm going to start with our build-to-suit pipeline and differentiated investment strategy. Since our inaugural build-to-suit for UNFI reached stabilization in September of 2024, we have continued to scale our build-to-suit pipeline through both existing and new relationships, having started 10 new projects with an aggregate estimated investment of $374.6 million. As of today, our active committed build-to-suit pipeline will deliver approximately $28 million of additional ABR between Q4 of this year and through the end of 2026, representing 6.7% growth in our current ABR. Our eight in-process developments, which range in size and scale and encompass both industrial and retail projects comprise an estimated total project investment of $370.9 million and have strong weighted average estimated initial yield of 7.5% and a fantastic weighted average estimated straight-line yield of 8.9%, driven by weighted average lease term and rent increases of approximately 13.1 years and 2.9%, respectively. These assets provide long-term, high-quality derisked and value-creating growth that is unique in the net lease space. In a competitive and higher interest rate environment where cap rates are under pressure, we believe our build-to-suit strategy provides us with a compelling competitive edge. You have heard this from us before, but it bears repeating. Our build-to-suit program gives us access to high-quality tenant and developer relationships, superior yield generation, meaningful value creation, long-term income stability, higher quality in newly constructed buildings and better overall real estate fundamentals. When you consider all of this together, it should be easy to see why we have such a high degree of confidence in the long-term value of these assets and the added flexibility they provide. This past quarter, we also made an additional $17.9 million investment in the form of transitional capital through a preferred equity investment in a consolidated joint venture that has acquired fully entitled land designated for industrial development. This additional investment was for the second phase of this project, bringing our total investment to date to approximately $41 million. We acquired the first phase in June and are scheduled to acquire the final two phases in the next couple of weeks, which will bring our total investment to approximately $85 million. This large industrial development is located in Northeastern Pennsylvania and comprises more than 500 acres of developable land. The Eastern Pennsylvania industrial market is experiencing robust demand with over 100 active tenants seeking more than 30 million square feet of space for requirements of 250,000 square feet and larger, particularly in Northeast Pennsylvania, where historical and under-construction pipelines remain active, underscoring sustained interest amid constrained supply and asking rents continuing to rise faster than the broader region due to limited availability and competitive positioning versus higher-cost markets. This site, in particular, has proven to be very attractive to potential tenants because of its strategic location, reaching over 143 million consumers within one day's truck transit, its proximity to several major highways and necessary infrastructure and its access to a committed oversized power supply far exceeding standard distribution and heavy manufacturing specifications coupled with exceptional water and wastewater capacities. This transitional capital investment, which is currently earning a preferred return of 7.8%, is a great example of the kinds of strategic investing and value-add transaction structuring that we can provide to our developer partners so that we can support the growth of their businesses while we grow ours and maintain necessary optionality. In this case, this opportunity provides us with the ability to either move forward with a potentially substantial build-to-suit project or given the strong interest we have experienced with this site to date to capture an attractive return by selling or refinancing our interest. We're excited about this one and look forward to sharing more as the project develops. I'll now turn to our regular way acquisition activity. Through the third quarter, we have closed $253.2 million in new property acquisitions and $8.3 million in revenue-generating CapEx, which together have a weighted average initial cash cap rate, lease term, and annual rent increase of 7.1%, 12.3 years, and 2.5%, respectively. And the completed acquisitions have an attractive weighted average straight-line yield of 8.2%. Subsequent to quarter-end, we have closed on $103.2 million of additional acquisitions and have approximately $67 million of acquisitions under control that are scheduled to close in the fourth quarter, along with $1 million in commitments to fund revenue-generating CapEx with existing tenants, giving solid visibility into our investment activity for the full year. While we are certainly proud of our acquisitions this year, we are incredibly pleased with the way most of them have been sourced. More than two-thirds of our acquisitions have been direct, relationship-based deals where our tenants, tenant sponsors, and developer partners have selected BNL to help them grow their businesses through strategic sale leasebacks and developer takeouts. In a hypercompetitive acquisitions environment characterized by an ever-growing number of net lease buyers chasing a rather muted product supply, having a channel of attractive direct deals is more important than ever. Now shifting briefly to our in-place portfolio. We were 99.5% leased at quarter-end with only three of our 759 properties vacant and collected 100% of base rents due for the quarter for all properties under lease, representing a 90-basis point increase compared to Q3 2024. With respect to At Home and Claire's, we successfully navigated through both bankruptcy proceedings with all leases assumed and no concessions on rent. As a result, we do not anticipate realizing any lost rent from either tenant in 2025, with Claire's already paid up through the end of the calendar year. As you heard from us last quarter, we were confident that we would work through the At Home and Claire's situations as we have with any other portfolio matter and that we will deliver attractive AFFO per share growth despite the noise surrounding these two discrete tenant credit events. That proved to be the case, and those situations serve as two further examples in a growing list of instances where the market has overreacted to a tenant event and the subsequent headlines despite our long track record of successfully dealing with these types of situations when they occur. The impact on our business from a tenant credit event has rarely been from the event itself. More often, it has been from the market's overreaction and the corresponding effect on our share price. Here, we have proven again that our underwriting is sound and our battle-tested team can navigate difficult situations when they arise. With that, I'll turn the call over to Kevin.

Thank you, Ryan. During the quarter, we generated adjusted funds from operations of $74.3 million or $0.37 per share, in line with the prior quarter and a 5.7% increase over Q3 of last year. Core G&A totaled $7.4 million for the quarter and $21.7 million year-to-date, continuing to track in line with the low end of our full year expectations of $30 million to $31 million. Year-to-date bad debt totaled 30 basis points, benefited by no bad debt incurrence during the third quarter. We have funded our investments through a combination of retained cash flow, disposition proceeds, and our revolving credit facility. We ended the quarter with pro forma leverage of 5.4 times net debt, approximately $38 million of unsettled equity, and over $900 million available on our revolver, maintaining sufficient financial flexibility heading into the end of the year. In September, we raised $350 million of 5% senior unsecured notes due November 2032, marking our return to the investment-grade bond market for the first time since our inaugural issuance back in September of 2021. The transaction garnered significant interest with an order book that was nearly 7 times oversubscribed, and proceeds were primarily used to pay down our revolver balance. This level of interest in our business from this investor base is highly encouraging as our attention turns back to growth capital alongside medium-term refinancing needs. We will continue opportunistically evaluating this market moving forward with an eye for maintaining our strong balance sheet and financial flexibility, making decisions we want to make versus those we have to make. Last week, our Board of Directors approved a $0.29 dividend per share payable to holders of record as of December 31, 2025, on or before January 15, 2026. Our dividend remains well covered. Our payout ratio continues to decline given our earnings growth from a peak of approximately 80% in Q1 of 2024, and our yield still represents a compelling investment relative to our peers. As John mentioned, we are increasing our 2025 per share guidance to a range of $1.49 to $1.50 with adjustments to key assumptions that include investment volume between $650 million and $750 million, an increase of $100 million at the midpoint, disposition volume between $75 million and $100 million, reflecting identified transactions that have already occurred or are expected to occur by year-end. Regarding bad debt, we would normally maintain at least 50 basis points for the remaining months in the year, but given no active or highly probable workup scenarios, we are expecting little to no bad debt to close out the year. Finally, it's always worth reminding everyone that our per share results for the year are sensitive to the timing, amount, and mix of investment and disposition activity as well as any capital market activities that may occur during the year. Please reference last night's earnings release for additional details, and we will now open the call for questions.

First question comes from John Kim with BMO Capital Markets.

I have a couple of questions about the build-to-suits. John, you mentioned the value creation you expect to achieve, and some of these build-to-suits might offer you opportunities for capital recycling. Is that your preferred outcome for these developments, or was that just a potential source of income that you noted?

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

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

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

We now turn to Upal Rana with KeyBanc.

John, I appreciate your comments on the ATM. When considering the possibility of issuing equity, are you focusing on a specific share price or the timing of the issuance? Or is it driven by the upcoming opportunities to make further investments?

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

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

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

We now turn to Anthony Paolone with JPMorgan.

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

Nothing significant. The executions we've had this year have been strong, reaching around 108% from leases we’ve executed for situations where we know someone is leaving. We have been proactive in finding replacements to either re-lease or sell. Our underwriting teams have already assessed all the way through 2028, allowing us to plan ahead and engage in discussions for 2026 and even some for 2027. Overall, we feel confident in our ability to manage these over time, especially since next year there is only a 3% impact, making it a relatively minor concern.

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

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

Our next question comes from Caitlin Burrows with Goldman Sachs.

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

I’ll address the retail investment first. The amount invested was less than $1 million, comprising a few hundred thousand dollars dedicated to the retail site focused on re-leasing tenant improvements. This site is a community center in St. Louis, anchored by one of the leading Home Depots in the country. The transitional capital was utilized to support the growth of one of our developer partners and allowed us to acquire seven individual properties through a sale-leaseback arrangement, achieving high 7 to low 8 cap rates for brands like Chick-fil-A, Bass Pro, and Burger King. It was a very appealing opportunity to secure these individual deals and establish a preferred capital joint venture for Sunset Hills, a property we own, which we plan to hold for the next couple of years. We were waiting for Home Depot to renew its lease, which occurred this year. Currently, we will hold the property, but we may have plans in the future to monetize it. Regarding the industrial side, we're still in the early phases, so our comments are somewhat limited. However, we are confident that this will transition into a build-to-suit opportunity. We approached this with the expectation of having significant optionality and upside potential. As mentioned by Ryan during the call, the site benefits from heavy power and water, along with its strategic location. We are already witnessing considerable interest from potential tenants in the beverage, packaging, and logistics sectors, as well as some owner-users interested in purchasing the land from us at a multiple of our invested capital. We believe there is substantial upside and flexibility, depending on how things develop, and we anticipate this will convert to one or more build-to-suits in the near future.

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

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

We now turn to Ronald Kamdem with Morgan Stanley.

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

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

We now turn to Jay Kornreich with Cantor Fitzgerald.

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

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

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

I feel optimistic about our watch list at the moment. There aren't any specific tenants to highlight like we did earlier this year with At Home, Claire's, and Zips. We're focusing on various sectors, including furniture and home furnishings, some casual dining, and companies facing near-term debt maturities. The sectors and factors we've been monitoring have remained consistent over the past two years. Overall, there isn't anything significant or any individual names to mention.

We now turn to Ryan Caviola with Green Street.

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

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

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

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

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

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

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

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

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

Yes, there is some timing involved where a few projects will close towards the end of the year. However, I believe we are not as far off as you might think. We have reached 256.7 million in terms of seven different build-to-suit projects that we initiated this year, starting with Southwire, which we formally closed at the very end of 2024, but did not begin funding until January. We also have multiple projects under executed letters of intent, and we hope to move forward with some of those in the upcoming weeks and months. Additionally, we are considering our transitional capital, which includes an $85 million investment for a future build-to-suit. Overall, combining all these factors, we are over $400 million, so it should be manageable for us to finish the year strong, and we feel optimistic about what we have in the pipeline.

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

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

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