Four Corners Property Trust, Inc.

Good day and welcome to the FCPP First Quarter 2021 Financial Results Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Jerry Morgan. Please go ahead.

Thank you, Betsy. During the course's call, we will make forward-looking statements, which are based on beliefs and assumptions made by us. Our actual results will be affected by known and unknown factors, including uncertainty related to the remaining scope, severity, and duration of the COVID-19 pandemic. that are beyond our control or ability to predict. Our assumptions are not a guarantee of future performance, and some will prove to be incorrect. For a more detailed description of some potential risks, please refer to our SEC filings, which can be found at fcpt.com. All the information presented on this call is current as of today, April 28th. In addition, reconciliation to non-GAAP financial measures presented on this call, such as FFO and AFFO, can be found in the company's supplemental report, also available on our website. With that, I'll turn the call over to Bill.

thank you jerry good morning thank you for joining us to discuss our first quarter results in summary we are very pleased with our continued industry leading collection levels the quality of the acquisitions closed year to date and the pricing of the private note offering raised this quarter which represented our lowest ever note coupon we reported first quarter affo of 38 cents per share which represents a one cent year over year increase. We benefited from a full quarter of income from the larger set of acquisitions closed at the end of 2020. Let me start with the health of our portfolio. While the restrictions related to the pandemic period have continued to be a challenge for the restaurant industry overall, the operators in our portfolio have pivoted well and are seeing strong rebounds in their business. We collected 99.7% of the schedule rents with the non-collections largely related to new acquisitions where rents were sent to the prior owner are in the process of being rerouted to us. We are not seeing rent deferral requests from our tenants, but instead are spending time with them on potential expansion opportunities in connection with our venture with Lubert Adler. If anything, the focus of operators in our portfolio is on finding sufficient labor as the business picks back up. and watching some signs of commodities inflation, especially in beef prices and even ketchup shortages, which some of you may have read about. As you've seen with our cattle operation, and as supported by Darden and other casual dining operators, EBITDA margins have improved because of simplified menus, lower levels of in-dining room server staffing, higher profitability for to-go business, investments in technology, and a focus on overhead efficiency. Darden is a good example of this. In their quarter ending February 28th, where they reported Olive Garden EBITDA margins had increased from 18.4% to 19.9% year over year, even though sales were down 27%. That's a hard thing to do with a business that has fixed expenses. We've discussed before how our Caro subsidiary, which now operates seven Longhorn Steakhouses in San Antonio, is a wonderful window and real-time understanding into what our tenants are doing to adapt. The Carrow team continues to post improving results with EBITDA of $373,000 as compared to EBITDA of $244,000 in the fourth quarter. This is an impressive result, especially since it includes some pre-opening costs for the 7th Carrow Longhorn Restaurant in San Antonio, which opened for business earlier this week. Congratulations to Carol Diltz, who runs the Carrow subsidiary and her team. The additional restaurant will contribute to results for the rest of the year, offset by some pre-opening costs that will occur in the second quarter. Restaurant operators have also proven resilient in adjusting their business models. Rinker is a great example of this, where in 2020 they've built a $150 million sales annual run rate to-go business called It's Just Wings. This business is highly profitable given a simplified menu and efficient provisioning out to existing Chili's restaurants. Even Red Lobster, not an obvious to-go concept, has adjusted their menu and reported strong to-go business growth. Staffing models are changing as well, with digital payments increasing. Darden reported that for the first time, over 50% of its sales were settled digitally, meaning via online, self-service tabletop tablets or mobile pay options. Turning to investments, we acquired 13 properties in the quarter for a combined price of $34 million and an initial yield of 6.6%. This group represents strong credit with 10 of the properties leased to corporate operators and the remaining leased to the largest franchisee of Brinker International. Seven of the 13 transactions were with non-restaurant tenants in the auto services, auto collision, and medical retail sectors. That is an anomaly to have so many non-restaurants in one quarter, but these are both sectors we continue to like because they're well insulated from Internet disruption. Our pipeline is strong, and we remain busy. But at the same time, the restaurant acquisition market has gotten more competitive since the pandemic for strong operators, especially for quick service restaurants. This is an interesting dynamic to see cap rates come in while the tenure has increased 75 basis points. Competitors include private buyers using ABS financing and individuals chasing yield. The result is that buyers are not getting compensated to take on complexity or for portfolio transactions. We remain committed to maintaining our strong investment discipline, which has proven out with the strong operating results during the pandemic. We have also noticed some of the brands and locations we passed on have not performed as well. This confirms our skepticism of high rents, weaker brands, and novel net lease concepts. Only one acquisition in the quarter came from our out-partial strategy due to the timing of partializations. So as of today, we have 45 million out-partial transactions that have been announced but not yet closed. As we've highlighted previously, many of the transactions we have closed on over the past two years have been ground leases. I want to relay one example of the benefit of low rents associated with ground leases. We have a Ruby Tuesdays property in Maine that we took back in connection with the brand's bankruptcy filing, our only Ruby Tuesday. However, given the low rents, we were able to release the property to a very strong tenant with slightly higher rents. On Lubert Adler, we expect to close on our first properties in the venture in the second quarter. As a reminder, we will announce these transactions in our quarter results rather than the day they close as we do with the other acquisitions. We announced two dispositions this quarter for $3.5 million, representing a 6.1% cash yield on prior in-place rents and a $400,000 gain. In both cases, the sales were a chance to prune the portfolio. The first was a vacant building where we were able to sell above our basis given the low rents that were in place, and the second was one of the lowest-rated properties in our portfolio but attracted a sub-six cap rate offer. You will see that our cash G&A was up slightly. A good chunk of that is timing, which Jerry will detail in his comments. But I do think it's important to comment that we are increasing our acquisition group's capabilities, both as our team now has more experience and also by adding new team members, and also bolstering our legal and accounting groups. We believe that is important to have additional capabilities to grow, whether that is in the Lupert Adler JV or in our regular way business. Everyone on the team remains healthy and is excited to return to the office in earnest this summer, and start hitting the road again soon. In summary, we're proud of another quarter of strong portfolio results and continued investment and team building progress. Jerry?