Four Corners Property Trust, Inc.

Welcome to the FCPT First Quarter 2024 Financial Results Conference Call. My name is Carla, and I will be coordinating your call today. During the presentation, you can register to ask a question by pressing star followed by one on your telephone keypad. If you change your mind, it's by star followed by two. I would now like to hand you over to Patrick Wernick. Patrick, please go ahead.

Thank you, Carla. During the course of this call, we will make forward-looking statements which are based on our beliefs and assumptions. 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 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, May 2, 2024. In addition, reconciliation to non-GAAP financial measures presented on this call, such as FFO and FFO, can be found in the company's supplemental report. With that, I'll turn the call over to Bill.

Good morning. Thank you for joining us to discuss our first quarter results. I will make introductory remarks, and Patrick, Josh, and Jerry will comment further on the acquisition market and our financial results and capital position. We reported first quarter AFFO of 43 cents per share, which is 2 cents, or 4.9%, up from Q1 last year. Our existing portfolio continues to perform very well, with 99.7% rent collections for the quarter and 99.6% occupancy at quarter end. Our EBITDA to rent coverage in the first quarter was 4.9 times for the significant majority of our portfolio that reports this figure. This remains amongst the strongest coverage within the net lease industry. According to Baird Research, year-over-year sales for the restaurant sector as a whole remain positive in the first quarter, in the 4% range after flat results in January, which was impacted by bad weather. Similar to last quarter, casual dining saw small declines off strong levels in the prior year period. Darden reported a 1.8% decline in same-store sales for Olive Garden and a 2.3% increase for Longhorn for the quarter ending February 25th. For Darden, restaurant-level EBITDA margin improved 70 basis points to 20.6%, reflecting commodity pricing and productivity improvements. We note that our second largest tenant, Brinker, also announced positive results on Tuesday. Chili's same-store sales grew 3.5%, and their restaurant-level EBITDA margin improved 90 basis points to 14.1%. FCPT acquired four properties in the quarter for $15.9 million at a 6.9% cap rate. All of the properties were in the medical retail sector, and we continue to benefit from establishing verticals in addition to restaurants, our historical core area of focus. Similar to the fourth quarter of 2023, we slowed down acquisition activity in the quarter to reflect the current cost of capital, of equity, and debt in comparison to acquisition market pricing. The current capital markets backdrop and seller reticence to accept higher cap rates has made it challenging to deploy capital accretively. In this environment, we remain disciplined allocators of capital. As we've stated in the past several quarters as well, we have established mental models and structured our team incentives to discourage deploying capital just to grow the company's size without also increasing per share metrics of earnings or intrinsic value. Turning to capital sources, we issued $6.9 million of equity early in the first quarter at an average offering price of $25.38. In March, we issued $85 million of term loans utilizing the accordion feature of our credit facility to achieve favorable borrowing costs. $50 million of the offering was used to pay down a private note debt maturity that was due in June of 2024. Our balance sheet is in great shape with our next debt maturity not scheduled until November 2025. The remaining $35 million was used to fund acquisitions. While we normally do not get into detail on individual tenants, we are aware of the public reports that Tiny Union is exploring options for Red Lobster, including selling the brand or restructuring alternatives. Before going into detail, it is important to note that we own a group of stores with below average brand rents and above average brand EBITDA to rent coverage. Now onto specifics. First, I'll start with portfolio management. In 2022, we noticed a few stores beginning to show weaker performance through our monitoring of store level sales and profitability. Over the next 18 months, we sold some of our highest rent and lower performing stores at an average cap rate of 6.5% and a positive gain. This dropped our exposure from 2.9% of annual base rent to 1.7% today. Today we own 18 properties of which 10 are in a master lease with an average rent of $276,000. The remaining eight are low rent ground leases and out parcels with average rent of $117,000. Blended together, this equates to an average rent of $206,000 per property. In both the case of the master lease and the ground leases, we have good rent coverage. Second, it's important to remember that we were highly selective in acquiring Red Lobsters in the first place. Over the years, we passed on a lot of Red Lobster locations where the rent was set very high or the underlying store performance was low. We recently reviewed nearly 200 Red Lobster rent comps to compare to our 18 locations. We found that 15 of our 18 restaurants have rents below the brand median for this comp set, and the remaining three were in the ballpark of brand median rent. While we hope Red Laster avoids restructuring, if it does come to that, we feel that we are well-positioned to manage the process. More importantly, in March, we announced Jerry's retirement from FCPT and Patrick's promotion to CFO. This transaction has been carefully planned over the last year and a half and will be completed tomorrow. I would like to sincerely thank Jerry for his service and contributions in helping us grow from a spinoff origin in 2015 Jerry was here day one as part of six employees many years ago. Jerry has been a great financial steward and has been instrumental in helping make FCPT what it is today. While Jerry will be around in the interim advisory role to support the team, we wish him all the best in the future. I'm also very excited to have Patrick step up in the CFO role. Patrick was working on the creation of Four Corners at J.P. Morgan even before Four Corners existed. He was one of our first hires and brings a deep understanding of our capital markets, our acquisition process, and our culture. With that, I'll hand it over to Patrick to further discuss the investment environment.