Four Corners Property Trust, Inc.

Hello everyone and thank you for joining us on today's FCPP second quarter 2025 financial results. My name is Drew and I'll be the operator on today's call. During the call we will have some prepared remarks followed by a Q&A session. If you would like to register a question today, please press star followed by one on your telephone keypad and to withdraw your question it's star followed by two. It's now my pleasure to hand over to Patrick Wernick to begin, please go ahead with your ready.

Thank you, Drew. 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 scpt.com. All the information presented on this call is current as of today, July 30th, 2025. In addition, reconciliation and non-GAAP financial measures presented on this call such as FFL and AFFL can be found in the company's supplemental report. That's all. Turn the call over to Bill.

Good morning. After my remarks, Josh will comment on the investment market and Patrick will discuss financial results and capital position. The first half of 2025 continued the momentum we had in the second half of 2024. We acquired additional properties that fit our high quality standards while keeping our pricing consistent. We were able to fund these deals with our strong cost of capital. Equity we raised on the ATM via forward issuance over the last year. 84 million in acquisitions in Q2 at a 6.7 blended cap rate. Over the last 12 months, we've acquired 344 million of properties, which is among our highest volumes across four consecutive quarters. We have momentum and are reaching these milestones in a uniquely FCPT way. One, we focused on real estate and credit worthy tenants never sacrificing quality for volume or spread. And two, we remain committed to modulating acquisitions when our cost of capital weekend and then returned with vigor when we re-entered the green zone. Our ability to fluctuate acquisitions to protect spread without weakening our portfolio quality is, in our view, a strong competitive advantage for FCPT. Our rent coverage in Q2 was five times for the majority of our portfolio that reports this figure. This remains amongst the strongest coverage within the net lease industry. Olive Garden, Longhorn, and Chili's are industry leaders and generally outperform the national peers as well as fine dining or local brands. Most recently, Brinker reported Chili's same store sales grew 32% for the quarter ended March 2025. Olive Garden and Longhorn reported same store sales growth of near 7% for the quarter ended May 2025. While casual dining is 66% of our rents, we also want to highlight the progress we've made on diversification. We've grown from 418 properties across five brands in 2015 at spin to 1260 leases across 165 brands 10 years later. Olive Garden and Longhorn are now 33 and 9% of our rent today versus a combined 94% at spin off. 34% of our portfolio rent is now outside of casual dining, including quick service at 11, automotive service at 12, and medical retail at 9. All of our chosen sectors are focused on central retail and services, creating what we view as a very defensive portfolio and quite tariff resistant. While we are still waiting for the tariff impact to completely settle, we expect restaurants and service industry to be less impacted due to their largely domestic supply chains. We would expect a pullback in consumer spending from any recession or high inflation environment, but we feel that we are well positioned with low rents to provide significant cushion. Our portfolio remains in fantastic shape with no exposure to the problem retailers or sectors that have been recently struggling, such as theaters, pharmacy, higher end car washes, and experiential retail. We aim for best in class disclosure. In addition to our press release of every acquisition, we also now disclose our top 35 brands in the supplemental, which represents 83% of our rents. The net lease industry peer group typically discloses 20 to 50% of rents. While we have not provided information on bad debt expense historically, because there hasn't been much to report, going back to 2016, we've had a total of $1.76 million in bad debt, excluding recoveries from releasing, versus $1.5 billion of rent collected over the same period. I'll repeat those figures. $1.76 million of bad debt versus $1.5 billion in rent collected. That's an average of 12 basis points or $176,000 per year, including zero in 2025. To put this in context, most of our peers have stated a track record or expectations of 25 to 75 basis points annually. I'd also like to note that in these rear credit events, our recovery rates for new leases have been very high, with an average above 90% of prior rent. They're often above 100% of prior rent when we replace the tenant. Over to you, Josh.

Thanks, Bill. During Q2, we acquired 24 properties for $84 million at a blended .7% cap rate with a weighted average lease term of 13 years. For the first half of the year now, we have acquired 47 properties for $141 million at a blended .7% cap rate. Next, sharing some statistics with the quarter. First, 68% of our total volume was in the automotive sector, including established tenants such as Caliber Collision, Christian Brothers, and Express Oil, brand known by Mavis, and Tires Plus, a subsidiary of Bridgestone. Second, one third of our investment volume was from salee specs with creditworthy operators looking to grow. Of note, we completed one with Christian Brothers Automotive and another with Vive Collision. The Christian Brothers opportunity was a repeat relationship from Q4. The team now operates over 310 locations across the country and notably has never closed a store due to poor business and a 43-year operating history. Vive, a Northeast-based collision repair operator, is a new tenant for us, though we've been following their progress for several years. We acquired two locations via salee specs and are excited to continue assisting their growth. Overall, this quarter highlighted how automotive service remains one of our core targeted industries. Specifically, the sector is both e-commerce and recession resistant, while benefiting from tailwinds, especially as the average age of passenger vehicles in the U.S. is now at a record 14 years. As demand for vehicle service continues to increase, we expect that operators of scale will continue to consolidate the market. Further, automotive service properties require special zoning and use permitting that is not always easily attainable from their respective municipalities. This creates a stickier tenant base that regularly renews versus relocating. Moving on to dispositions, while we did not have any this quarter, our team continues to field frequent reverse inquiries and offers on our properties. Looking forward, the Boulder Group's most recent report showed flattening cap rates and a flight to credit quality, which could indicate coming pressure on net-risk cap rates. However, we are continuing to find attractive opportunities that are both consistent with our quality thresholds, but within pricing standards similar to what we have seen earlier in the year. Lastly, and as a reminder, we do not provide acquisitions guidance. We will remain disciplined in our pricing as we continue to see the ideals that meet our dual quality return thresholds. Patrick, back to you. Thanks,

Josh. I'll start by talking about capital sourcing in the state of our balance sheet. In Q2, we raised $24 million in equity. That is in addition to the $149 million that we raised in Q1. Over the last 12 months, we've raised nearly half a billion dollars of equity, which has allowed us significant capacity to match fund our acquisitions. As of yesterday, we have $146 million of unsettled equity for at a price of $28.30. We've become increasingly comfortable maintaining a forward equity balance as higher silver rates largely offset the carrying costs. With respect to overall leverage, our net debt to adjusted EBITDA RE is 4.5 times, inclusive of outstanding net equity forwards as of June 30th. Excluding our forward equity balance, our leverage was 5.4 times. This is our fourth consecutive quarter of leverage below our stated guidance of 5.5 to 6 times and remains near a 7-year low. We still have full capacity under our $350 million revolver and have the liquidity to continue executing our business plan this year without further access in capital markets. We layered in two additional hedges after June 30th, which has further lowered our voting rate interest exposure. We now have 95% of our term debt fixed through November 2027 at 3% versus spot rates today near 4.35%, including our fixed rate private notes near 97% hedged. Including extension options, we have near zero debt maturities for nearly two years and our staggered maturity schedule will ensure we do not face a significant fall at any point thereafter. Additionally, our fixed charge cover ratio is a healthy 4.5 times. All together, this puts us in a great liquidity position with approximately $500 million of available capital for funding acquisitions as of today. Presuming no further equity issuance, we have an approximate $470 million of capacity before reaching 6 times that leverage. Now turning to some of the financial highlights for Q2. We reported AFL per share of $0.44, which is up .8% from Q2 last year. Rental income, cash rental income was $64.5 million, representing growth of over 11% of the quarter compared to last year. Annualized cash-based rent for leases in place as of quarter end is $249.8 million and our weighted average five-year annual cash rent escalator remains 1.4%. Cash DNA expense excluding stock-based compensation is $4.4 million, representing .9% of cash rental income for the quarter compared to .4% for the quarter last year. This improving operating leverage illustrates our continued efforts at efficient growth and will tend to benefit of our improving scale. We are still expecting cash DNA will be in the range of $18 to $18.5 million for 2025. As we're managing our lease maturity profile, we have 41 leases expiring in 2025 and our team has made significant progress with more than 85% of those tenants already extending their lease or indicating intent to do so. 2025 remaining expirations now represent just .4% of AVR and we are beginning work on next year's expirations. For reference, we had 44 leases expire last year with 40 renewing. Two of those non-renewals are already released and the other two are inactive negotiations. There were no material changes to our collectability or credit reserves nor any balance sheet impairments. Our portfolio occupancy today remains strong at .4% and we collected .8% of base rent for Q2. With that, we'll turn it back over to Drew for questions.

Thank you. We'll now begin today's Q&A session. If you would like to register a question, please press star followed by one on your telephone keypad and to withdraw your question is star followed by two. We'll now take our first question from John Kilchowsky from Wells Fargo. Your line is now open. Please go ahead.

Good morning. Thank you. Bill, on previous calls you've made mention about building out your acquisition team. I'm curious when you look at the volumes that you've done, is that a product of, you know, we're fully worked, this is the most that we could possibly do and extending our team would allow us to do more volume or do you think that at this point your team is fully functioning, you don't need to really add scale and this is just the opportunity set that's available that you're winning?

Yeah, it's a terrific question. I mean, I would reflect that we run the company pretty bootstrapped. So we definitely don't have excess capacity in acquisitions or other parts of the company, frankly. But really, it's a function of recruiting folks out of college, training them in the business or the way we see the business working. And I would say we are appropriately staffed. We definitely have the capacity to do more acquisitions to the extent that we find more favorable pricing. But really, the thing that is, you know, steps where our acquisition volume is today is the availability of well-priced assets in the marketplace. We're finding things that score high enough. It's just the pricing has not been terribly attractive, sufficient, but not terribly attractive.

Understood. And I guess if I were doing a sensitivity analysis and cap rates were to move, let's say, 10 or 20 bits in your direction, you kept your cost of capital, where it is, how much do you think that that would move the opportunities set for you if you're doing a couple hundred million dollars of investments in a quarter? You know, where do you think that that could move that needle to? I'm just trying to sort of sensitize this.

Yeah, I'd first look at the forward that we have, which is already priced at north of $28 where we raise that capital. And so, you know, to take your question, maybe 25 basis points would be substantial would be, you know, 100 or 200 million.

Got it. Thank you.

Our next question today comes from Michael Goldsmith from UBS. Your line's now open. Please go ahead.

Good morning. Thanks a lot for taking my question. You acquired some olive gardens in the quarter and you're also looking to diversify the portfolio. So does this imply that you kind of reach the comfortable level of garden exposure that you're interested in maintaining going forward?

You know, we consistently diversified the garden exposure down, but we haven't hesitated to buy garden related assets when we found ones that we really liked and the pricing was great. And that, you know, played out in this quarter. Very often the ones that we're buying are out parcels where the rents are really low. Garden is doing, you know, fantastic. It has an equity market cap over $25 billion. Its credit to full swaps are in line with the U.S. government's CDS. So it's not something that we shy away from doing if we find buildings that we think are well located and the pricing's right.

Got it. And thanks for that, Bill. And then as a follow up, you've been an active acquirer in the first half of the year. Last year's acquisition activity was pretty back weighted. So recognizing that you don't provide guidance, but should we expect a similar acceleration in acquisition activity in the back half of this year?

I think it really comes down to cost of capital and what the markets, you know, brings us, but we're certainly quite busy. Your observation that Q4 tends to be our largest quarter. I think that has been true over most of our tenure. But we're too soon to see what would close in Q4. Those would be assets that would typically be sourced and underwritten in the August, September, early October timeframe. So a little too soon to tell. I'll have more detail on that next call.

Thanks again. Good luck in the back half.

Thank you. Our next question comes from the line of Anthony Pallone from JP Morgan. Your line's now open. Please proceed.

Yeah, thank you. You had a lot of transactions skewed to auto services in the quarter and was wondering if that was just where the deal flow happened to be or if that was a bit more intentional than usual?

Just where the deal flow happened to be, precisely.

Okay, and then going back to the earlier question in the math around, you know, maybe picking up 25 basis points. Like if we kind of just do the math on our side, it seems like where you've raised capital and where your yields have been, it's, I don't know, 50, 75 basis points of blended spread. And so, you know, should we look at that as if, you know, if you were to do something a little bit closer to a seven given that you've locked a lot of your financing costs right now or your equity costs, like that that would kind of open up the deal volume or just trying to think about how, you know, how that would work?

Yeah, I was just trying to make a comment that if our historical acquisitions have been in between 6.7 and 7, if you lowered that range by 25 or 50 basis points, there's a lot more to do. But we want to make sure that we, you know, are creative when we acquire things and that we feel like we're paying a fair price for the real estate. And I think if you look at our history, we haven't, on one hand, when rates were very low, we weren't buying things in the mid fives. And when our peers had impaired stock prices, they were acquiring things at mid to high sevens, but they were dipping down in quality. And the point that we're trying to make is we try to stay very consistent on quality and price. And when the stock market gives us the opportunity to raise equity at favorable pricing, we're not bashful.

Okay, understood. Thanks,

Bill. Our next question today comes from Kyle Katrinasek from JANI. Your line is now open. Please go ahead.

Hey, good morning, guys. Shares remaining to be settled under forward are now around 150 million down from 250 million last quarter. Is this a reason for the existing pipeline over the next 60 to 90 days that you're seeing less opportunities in your strike zone, or is it more a function of your stock prices currently? It's probably more of the latter. All right. Thank you.

Our next question comes from Alec Bagan from BARD. Your line is now open. Please proceed.

Thanks for taking our questions. First one for me is, is deal flow picking up and has the competitive landscape been changing at all?

I think the deal flow has been quite consistent. And we're always looking at everything from very substantial portfolios down to one million dollar buildings. But I would say it's been pretty consistent. The pricing has been acceptable for what we're buying. But certainly the pricing isn't super attractive. So we're trying to pick our spots. And as mentioned, we have capital that was raised at good prices on our ATM that provides some runway.

All right. And then between the credit and real estate criteria, what has been the stronger filter and not getting deals done so far in 2025?

I don't really think there's been much change in scoring. It's really more to do with pricing. We're certainly finding sufficient volume of things that meet our quality criteria. It's just when you put that next filter on making sure the pricing is accreted for our shareholders, that becomes a governor on how much you can do.

All right. That's it for me. Thank you. I would

also point out that we're, you know, we are operating the business at record levels of acquisition despite not having large portfolios in that mix, which is how in prior years we had elevated acquisition volume.

Got it.

Our next question today comes from Mitch Jermaine from Citizens Capital. Your line is now open. Please go ahead.

Thanks, Bill. Looks like 2027 you start to get the Darden spin assets beginning to roll. Obviously, you're already working on 26 roll now. So is there an anticipation and maybe start to pull some of that forward here?

The extension options are at Darden's option and they have a notification of a year to tell us what their intentions are. We're in constant dialogue with them. It's a fantastic relationship. We'll see how that works as time plays out. Frankly, they are very, very highly covered. So it's a bit of a different situation than in most net leases. These are properties that are highly productive with rents that are very reasonable.

Great. That's super helpful. And then you may have been asked this in the past. I apologize if you were, but Bahama Breeze obviously facing some store closures. Anything of note? I think you have 10 properties exposed to that tenant. Is there any sort of proactive, anything proactive that you guys are doing on your end there?

We had one that was closed, one, only one property on the closure list. They're paying rent for the next handful of years on that property. It's located at Sawgrass Mills, which is a mall I know really well. It was part of an acquisition that I did when I was at Farallon with a Simon property group. It's one of the best malls in America. So I think we've already had tenant interest to take over that property. It's again, you know, on a ring road of one of the best malls in the country. Other than that, we had pruned our Bahama Breeze exposure right after a stand. And what we're left with are very strong properties with very reasonable rents. I don't think there's any, there's not any concern. In fact, there may be some opportunity there.

Great. Thank you so much.

Thanks, Mick.

As a final reminder, if you would like to ask a question today, it's staff followed by one on your telephone keypad and to withdraw your question, staff followed by two. Our next question comes from Jason Wayne from Barclays. Your line is now open. Please go ahead.

Hi, yes, most of my questions are asked, but I saw your recent acquisition announcement of a veterinarian retail property. So pretty small deal, but the cap rate was above kind of recent levels. Can you just walk through your outlook for that industry and what makes you more comfortable with more deals there?

Yeah, you know, vet falls underneath our medical retail efforts. It's a vet industry is changing. It's probably a longer subject than for this call. But, you know, we think it's an interesting space. We're a little bit wary of private equity in that industry, but overall reasonable basis, decent returns and something you should expect to see us do more of going forward.

Got it. Thanks.

Thank you. We have no further questions in the queue at this time, so that does conclude the Q&A portion of today's call. I'll hand back over to Bill Lanahan for some closing comments.

Great. Thank you, Drew. Just some final thoughts. The portfolio remains resilient, small and fungible buildings leased to large national operators, which are resilient and uncertain times. We have evidenced a strong track record with an ultra low bad debt expense and strong releasing results. We have a 10-year track record of being extra sensitive to our cost of capital by modulating capital raising and investment when necessary. We invest when it's in creative for our shareholders. We believe the FCPT is in a strong position to continue to execute our strategy, no matter the near-term market conditions, having over 144 million in unsettled forwards, full revolver capacity and no near-term debiturities. Thank you for your time, everyone.

That concludes today's call. You may now disconnect your line.