Executive Summary / Key Takeaways

• Broadstone Net Lease ($BNL) is executing a differentiated growth strategy, centered on its build-to-suit development program and relationship-based acquisitions, which is driving robust financial performance and providing long-term earnings visibility.
• The company reported strong Q3 2025 results, including a raised full-year AFFO guidance of $1.49 to $1.50 per share, representing 4.2% to 4.9% growth, and achieved 100% rent collection for the quarter.
• BNL successfully resolved significant tenant credit events, including the At Home and Claire's bankruptcies, without incurring bad debt, underscoring its sound underwriting and operational expertise.
• A fortified, investment-grade balance sheet with ample liquidity and a strategic approach to capital allocation positions BNL for continued self-funded growth, reducing reliance on volatile equity markets.
• The company's industrial-focused, diversified portfolio and innovative development approach provide a competitive edge amidst a challenging macroeconomic and competitive real estate landscape.

A Differentiated Blueprint for Net Lease Dominance

Broadstone Net Lease, Inc. ($BNL) operates as an industrial-focused, diversified net lease real estate investment trust (REIT), specializing in income-producing, single-tenant commercial properties primarily across the United States. Formed in 2007, BNL has cultivated a stable operational history, with its management team averaging a decade of tenure. The company's strategic evolution, particularly since early 2023, has been marked by a deliberate repositioning of its portfolio and the implementation of a differentiated growth strategy.

This strategy is underpinned by four core building blocks designed to drive long-term value: embedded same-store net operating income (NOI) growth, revenue-generating capital expenditures (CapEx) with existing tenants, a laddered pipeline of committed build-to-suit development projects, and a diversified acquisition pipeline focused on relationship-based deals. BNL's approach aims to mitigate the volatility often associated with traditional net lease transaction markets, where shifts in volumes, cap rates, and asset quality can be unpredictable.

Strategic Innovation: The Build-to-Suit Advantage

BNL's most significant differentiator lies in its innovative build-to-suit (BTS) development program, which serves as a strategic and operational "technology" in the context of real estate investment. This is not a physical technology but rather a sophisticated, process-driven approach to value creation that offers distinct advantages over traditional acquisition models. The program provides BNL with long-term, high-quality, de-risked, and value-creating growth, offering visibility into its embedded AFFO growth profile for several years into the future.

The tangible benefits of this strategic innovation are compelling and quantifiable. For new property acquisitions in Q3 2025, the weighted average initial cash capitalization rate was 7.1%, with a weighted average straight-line yield of 8.2%. However, the estimated returns in the build-to-suit pipeline are even more attractive, standing at a 7.5% initial cash capitalization rate and an 8.9% straight-line basis. Furthermore, BNL targets a spread between its development yield and stabilized value of more than 100 basis points, representing an additional layer of value creation that is a rarity in the net lease world. This value can be recognized either through NAV accretion or positive capital recycling upon asset sale.

BNL's BTS program also emphasizes constructing high-quality, new buildings for creditworthy tenants in mission-critical facilities. For example, a new $78.2 million project with Prologis (PLD) for FCA U.S. LLC (Stellantis) (STLA) in the Atlanta MSA will be a Class A industrial asset with 36-foot clear heights, full HVAC, heavy power, and additional trailer parking, designed to appeal to a wide variety of logistics operators. The company mitigates traditional development risks, such as construction delays and cost overruns, through robust structures like general budget contingencies, GMP or lump sum construction contracts, and change order processes. This operational rigor ensures project delivery and protects investment returns.

Competitive Landscape and Market Dynamics

BNL operates in a highly competitive net lease REIT market, vying with established players like Realty Income Corporation (O), W. P. Carey Inc. (WPC), NNN REIT, Inc. (NNN), and Spirit Realty Capital, Inc. (SRC). BNL's diversified portfolio, spanning industrial (61.2% of ABR), retail (30.6% of ABR), and other property types (8.2% of ABR) as of September 30, 2025, provides a broader risk mitigation strategy compared to more concentrated peers.

This diversification, coupled with a focus on strong fundamental credit analysis, enhances BNL's operational resilience.

The competitive environment for traditional net lease acquisitions remains fierce, characterized by numerous new entrants and private buyers with significant capital. These buyers often push pricing on larger, "chunkier" industrial deals. In this context, BNL's ability to source more than two-thirds of its acquisitions through direct, relationship-based deals provides a critical competitive advantage, allowing it to bypass heavily marketed processes.

Broader industry trends are also shaping BNL's strategic positioning. E-commerce continues to be a tailwind, driving demand for distribution and logistics assets in major hubs like Dallas-Fort Worth, Atlanta, and Chicago. Furthermore, the momentum in reshoring manufacturing activities is creating new opportunities, not only in direct manufacturing facilities but also in the associated demand for nearby logistics and distribution infrastructure. These trends align perfectly with BNL's industrial focus and its build-to-suit capabilities, positioning the company to capitalize on long-term structural shifts.

Financial Performance and Operational Excellence

BNL's financial performance in 2025 demonstrates the efficacy of its strategic initiatives. For the nine months ended September 30, 2025, lease revenues, net, increased by 5.1% to $335.84 million compared to $319.67 million in the same period of 2024. This growth was primarily driven by portfolio expansion through new acquisitions and revenue-generating capital expenditures.

Adjusted Funds From Operations (AFFO) for Q3 2025 reached $74.3 million, or $0.37 per share, marking a 5.7% increase over Q3 2024. Year-to-date bad debt totaled a mere 30 basis points, with no bad debt incurred in Q3 2025, reflecting robust rent collection and successful tenant management. Core General & Administrative (G&A) expenses remained well-managed at $21.7 million year-to-date, tracking at the low end of the full-year guidance.

The company's portfolio remains highly stable, with 759 properties and a 99.5% lease rate as of September 30, 2025. The Annualized Base Rent (ABR) weighted average remaining lease term stands at approximately 9.5 years, with 97.5% of leases featuring contractual rent escalations averaging 2% annually. This embedded growth provides a predictable revenue stream.

BNL has also demonstrated a proven ability to manage tenant credit events. The company successfully navigated the bankruptcies of At Home and Claire's in 2025, with all leases assumed and no bad debt incurred from either tenant. This outcome, despite market concerns, highlights the strength of BNL's underwriting and its experienced team's ability to resolve complex situations.

Capital Structure and Liquidity

BNL maintains a strong, investment-grade balance sheet, evidenced by its BBB from S&P and Baa2 from Moody's (MCO) credit ratings. As of September 30, 2025, the company reported a Net Debt to Annualized Adjusted EBITDAre ratio of 5.7x and a Pro Forma Net Debt to Annualized Adjusted EBITDAre ratio of 5.4x, comfortably within its target of generally less than 6.0x on a sustained basis.

In September 2025, BNL successfully returned to the investment-grade bond market, completing a public offering of $350 million in 5% senior unsecured notes due in 2032. This offering was nearly seven times oversubscribed, underscoring strong investor confidence in the company's financial health and strategy. The proceeds were strategically used to repay borrowings on the unsecured revolving credit facility, fund real estate investments, and for general corporate purposes.

The company's liquidity is robust, with $904.2 million of available capacity under its unsecured revolving credit facility as of September 30, 2025. This facility was amended in February 2025, extending its maturity to March 31, 2029, and increasing its accordion feature from $1.5 billion to $2.5 billion. BNL also expects to settle approximately $37.3 million in net proceeds from outstanding forward sale agreements in Q4 2025. This ample liquidity, combined with a disciplined approach to capital recycling through opportunistic dispositions, allows BNL to self-fund its growth initiatives without undue reliance on public equity markets.

Outlook and Risks

BNL has raised its full-year 2025 AFFO guidance to $1.49 to $1.50 per share, representing 4.2% to 4.9% growth for the year. This upward revision is supported by an increased investment volume guidance of $650 million to $750 million for 2025 and a reduced expectation of little to no bad debt for the remainder of the year. The active committed build-to-suit pipeline is projected to deliver approximately $28 million of additional ABR between Q4 2025 and the end of 2026, representing 6.7% growth in current ABR. BNL aims to add at least $500 million in additional build-to-suit developments in 2025 for stabilization in 2026 and 2027.

Despite this positive outlook, BNL acknowledges several risks. The company is exposed to interest rate risk from its floating-rate debt and when fixed-rate debt matures, though it employs interest rate swaps and staggered maturities to mitigate this. Foreign currency exchange rate risk exists due to Canadian investments, which is naturally hedged by Canadian dollar borrowings. Macroeconomic uncertainty, including potential impacts from tariffs on inventory sourcing and consumer spending trends, remains a focus area. The company also monitors specific tenant sectors, such as home furnishings, casual dining, and those with near-term debt maturities.

Conclusion

Broadstone Net Lease stands as a compelling investment opportunity, distinguished by its innovative and disciplined growth strategy. The company's focus on a laddered build-to-suit development pipeline, complemented by relationship-based acquisitions, provides a unique competitive edge and clear visibility into future earnings growth. BNL's strong financial performance in 2025, marked by rising AFFO, robust rent collection, and successful management of tenant challenges, underscores the effectiveness of its operational model and strategic execution.

With a fortified balance sheet, ample liquidity, and a strategic approach to capital allocation that prioritizes self-funding, BNL is well-positioned to capitalize on favorable industry trends like e-commerce expansion and manufacturing reshoring. The company's commitment to maximizing value through its differentiated strategy, coupled with its proven ability to navigate market complexities, suggests significant upside potential for investors. BNL's trajectory points towards sustained mid-single-digit AFFO per share growth in the coming years, making it a noteworthy player in the net lease sector.