Four Corners Property Trust, Inc.

Ladies and gentlemen, welcome to the FCPT First Quarter 2023 Financial Results Conference Call. My name is Gray and I will be the moderator for today's call. If you would like to ask a question during the presentation, you may do so by pressing star 1 on the telephone keypad. I will now hand over to your host, Gerald Morgan, CFO of FCPT. Gerald, please go ahead.

Thank you, Glenn. During the course of this 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 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 more detailed description of some potential risks, please refer to our SEC filings, which can be found at fcpt.com. All of the information presented on this call is current as of today, May 2, 2023. 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.

Good morning. Thank you for joining us to discuss our first quarter results. I'm going to make introductory remarks. Patrick will make further comments on acquisitions and the pipeline, and then Jerry will discuss the financial and capital raising results. The existing portfolio continued to perform exceptionally well with 99.9% collections for the quarter and occupancy also at 99.9%. This is going to be an interesting year overall for the commercial real estate sector. With transaction volume predicted to be down 50% or more, some REIT sectors unable to raise capital creatively and specific sectors like office definitely out of favor. We contrast that with what FCPT we believe will be a year of business as usual. By that I mean that we expect our portfolio to continue to perform well and benefit from the high tenant coverage our low rent levels allow. First quarter acquisition volumes were lower, which was in line with the overall market slowdown in our typical deal timing. However, we are currently working on very interesting investment opportunities in our pipeline, many of which are deals that may not have come our way in the past. we believe that 2023 will be a very healthy growth year. Of course, capital costs have gone up too, and we remain vigilant on comparing our investment yields against the cost of capital used to fund those acquisitions. In the quarter, we raised $52 million of equity at an average price of $27.73. And we began the second quarter with pricing locked on over 185 million of combined equity forwards and treasury locks to fund acquisitions at accretive rates. We reported first quarter AFFO of 41 cents per share. EBITDA grew 9% on a year-over-year basis. AFFO was flat prior quarter and year-over-year. This is due to the effects of higher interest rates on both our cost of debt and cost of equity. Cash rental revenues grew 12.2% on a year-over-year basis, including the benefit of rental increases and $263 million of acquisitions in the last 12 months. This included the acquisition of 10 properties in the first quarter for 20 million at an initial cash yield of 6.9%, reflecting rents in place as of March 31st. Patrick will discuss the current investment environment in more detail, but just speaking at a high level, the first quarter continued to see attractive acquisition pricing with cap rates above historical levels, especially after the Silicon Valley Bank and Signature Bank collapses. The Q1 acquisition's average cap rate reflected that dynamic, improving 30 to 60 basis points versus the 6.6 and 6.3 in Q4 and Q3 of last year. Of course, the news of the First Republic Bank is still being processed by the market. We anticipate investment opportunities for FCBT will emerge from the continued tightening of lending standards. Moving on to our tenants' performance, restaurant operators continue to have strong sales results in the first quarter, with Baird estimating restaurants are operating at approximately 105% of 2022 weekly sales levels, according to their survey on April 24th. Restaurant operators are seeing moderation of cost increases in food and labor, but are still expecting some levels of margin pressure. We continue to view the industry sales trend as a helpful data point, but we also want to call out the very strong recent performance of our two largest tenants, Darden and Brinker, Darden, the parent company of Olive Garden and Longhorn, saw this brand same-store sales rise 12% and 11% for the most recent quarter. Olive Garden's margins rose 390 basis points from the prior quarter to 22.5%. Longhorn also showed significant improvement, rising 310 basis points from the prior quarter to 17.4%. Brinker, the parent company of Chili's, saw its brand same-store sales rise by 8%. and restaurant margins improved by 450 basis points to 10.3%. All three of our anchor brands are benefiting from moderating labor and commodity costs while continuing to leverage rising sales volumes. Our estimated EBITDA rent coverage was 4.6 for the 72% of our portfolio that reported this statistic, driven mainly by large improvements in margins in Darden's last quarter. This remains amongst the strongest coverage within the net lease industry and provides a cushion inflationary impacts on input prices and moderating consumer demand. One item that we've been tracking is how much Darden brand sales have risen since the FCP10 spinoff in 2015 versus how much rents have risen. Olive Garden and Longhorn same-store sales have risen 23% and 45% respectively over the past seven years, while rent has only risen 11%. With that, I'll turn it over to Patrick.