Four Corners Property Trust 2026 Q2 Earnings Call

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, July 30th, 2026. 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. With that, I will turn the call over to Bill.

Good morning. Following my initial remarks, Josh will comment on our investment activity, Patrick will discuss financial results and capital position. It has been a remarkable time for FCPT. First, we are only through the first seven months, and we've already exceeded our prior record annual investment volume. Year to date, we've acquired $382 million of properties at a blended 6.6 cash cap rate. This investment activity has pushed us past an important diversification milestone, as FCPT has now acquired over 1,000 properties since inception. Our original spinoff portfolio is now just 29% of the properties we own today. Since April, we have also completed two large financings with very low coupons for a total proceeds of $600 million. Not only do these refinancings push our maturity schedule meaningfully, but also provide us with sufficient dry powder for our investments in 2026.

It is also worth noting that the coupon represent approximately a 200 basis point spread to our historical investment yields. We encourage our analysts and investors to revisit their models given the major developments at FCPT, including those that occurred in July, closing after Q2. These major developments aren't yet reflected in our Q2 financials and have not been realized in our reported AFFO. For ease of reference, we have included a number of slides in our latest investor presentation with pro forma figures. Lastly, we also recently announced switching to a monthly dividend, with the first monthly payment scheduled for August. This move aligns timing of rent payments from our tenants with distributions to our shareholders. We believe a monthly dividend is consistent with our longstanding focus on shareholder alignment, transparency, and predictable cash flow generation.

Moreover, this reflects our confidence in stable rent receipts from our fortress portfolio, and we believe the change will better match the income preferences of many retail investors. Switching over to an update on portfolio performance. Occupancy remains above 99%, and our rent coverage for Q2 was 5.2 times for the majority of our portfolio that reports this figure. This is amongst the best coverage within the net lease industry and what we believe is a reflection of our conservative underwriting. The rent coverage figure for our Darden property specifically is 6.0 times and has improved over time, remaining above five times for the past three years. Our three largest restaurant brands, Olive Garden, LongHorn, and Chili's, continue to outperform their peers in gross sales quarter after quarter, most recently 2.4 times, 9.5%, and 4%, respectively.

As such, we note that we have avoided some of the most problematic net lease sectors experienced headwinds in recent years, including pharmacies, experiential retail. By scoring every property and targeting low basis fundable properties with skilled operators, we have built a recession and e-commerce resistant portfolio. As a reminder, to date, we have had no major tenant credit issues, limited vacancy, and very, very low bad debt expense. We continue to significantly diversify. Pro forma for the Mission Pet Health portfolio, approximately 41% of our rent now comes from outside the casual dining tenants, including medical retail at 16%, auto service at 13%, and quick service restaurants at 10%. Darden now represents just 41% of cash rent approximately.

We note that the first tranche of the original Darden spin properties is due to send us extension notices by no later than October of this year for leases maturing the following year in Q4 2027. We are expecting a very, very high renewal percentage given the strong performance of the stores and six times coverage overall on our Darden properties. I'll leave you with this before turning it over to Josh. ABR has grown by 11% annually since inception, and we have meaningfully diversified results on a very granular, safe portfolio. FCPT has matured a great deal over the past decade, and as we look forward, we believe we are uniquely positioned within the net lease universe. We are clearly able to execute on large transactions while also maintaining a strong regular way pipeline as a baseline for sustained, attractive, risk-adjusted growth.

We believe we've built a very strong credit-focused portfolio all the way staying within our stated leverage metrics. The world has a lot of volatility, especially today, but FCPT has been remarkably stable. Over to you, Josh. Thanks, Bill.

I'll start with a review of Q2 activity, walk through the Mission Pet Health portfolio, and then touch on our investment pipeline. In Q2, we acquired 23 properties with a weighted average lease term of 10 years for $57 million at a blended 6.8% cash cap rate or a 7.5% GAAP cap rate. Our investment activity in the quarter was heavily weighted towards automotive at 64% of volume and anchored by a $26 million acquisition of 14 properties leased to Sun Auto Tire & Service, a leading operator in the automotive service and repair sector. The remainder were restaurant and medical retail investments at 22% and 14% of volume respectively. As a reminder, we do not maintain sector quotas or pipeline targets, but allocate capital purely on the opportunity set, finding the best risk-adjusted returns with what we see as the strongest spread generation.

Subsequent to quarter end, we completed the acquisition of a 102 property portfolio leased to Mission Pet Health for $268 million. The seller was Shore Capital Partners, and the portfolio represented the entirety of Shore Capital's Real Estate Fund I. The portfolio closed very early in Q3, so we will have the benefit of nearly all of the annualized cash rent of $17.4 million in our Q3 results and further gain from its approximately 2% annual rent growth on a go-forward basis. While it was the largest acquisition in our 10-year history, it was also highly consistent with the characteristics that have defined FCPT since inception. Low basis properties, conservative rents, strong unit-level economics, and a leading operator as our tenant. We've historically preferred to build our portfolio granularly, as large portfolios on the market often come with properties that may not fit our selection criteria.

This was not the case here, and it was clear that Shore constructed this high-quality platform with a buyer like us in mind. First, the portfolio is largely structured across two absolute triple net master leases of high institutional quality. The master leases have approximately 10 years of term remaining, approximately 2% annual rent escalations, and strong financial reporting requirements. Next, the rents were set conservatively and align with our net lease philosophy. Unit-level coverage is over six times, and an average basis per property at $2.6 million compares well with our Q2 rent coverage of 5.2 times an average basis of approximately $3 million. Lastly, and similar to many of our favorite investment sectors, veterinary real estate is mission critical, and their services are often non-discretionary. Additionally, Mission is one of the largest veterinary operators with over 900 locations across the country.

Their recent investment from Silver Lake valued the company at $8.6 billion. We were already familiar with the credit and team as they are an existing tenant of ours, which makes us even more excited to welcome them as our number three brand across the portfolio. We'd like to thank Shore, Mission, and Eastdil Secured teams, as well as everyone at FCPT involved in executing this transaction. Completing diligence on 102 properties with the same rigor as our usual process while still closing less than 49 days from announcement is a strong testament to the talented and motivated team we've assembled and the strength of our platform. Moving on to our pipeline, we've also continued to source and execute our regular way investments as well, spanning restaurants, automotive service, and other medical retail investments across 10 distinct transactions in Q2.

I'd like to commend our investment team and the entire platform for their ability to diligently execute both large and small transactions in an extremely organized and efficient manner. Looking forward, we're continuing to explore potential investments in new subsectors such as grocery and industrial outdoor storage, as evidenced by our July investment activity. We remain active in evaluating opportunities across these two sectors, among others, as we actively expand our opportunity set and build domain expertise. Whether it's a grocery store in Florida or a restaurant in Texas, we remain committed to acquiring low basis properties that are leased to best-in-class operators at pricing accretive to our cost of capital. Patrick, back to you. Thanks, Josh.

I'll start by talking about our recently closed debt deals and updated balance sheet. I'll provide some commentary on the quarterly results. Since April, we have closed a total of $600 million in new debt capital while adding Citi and RBC to our already strong lending syndicate to provide further borrowing support. This $600 million represents over a third of our total in-place debt, creating meaningful improvement for our balance sheet while avoiding dilutive refinancings. This included closing both the $200 million term loan facility with seven-year tenor at SOFR plus 125 basis points and a $400 million term loan with a five-year tenor at SOFR plus 90 basis points just a few days ago. I'd call out that at current SOFR levels, this debt has all-in rates of approximately 4.5%-4.9%.