Four Corners Property Trust, Inc. 2026 Q3 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 potential risks, please refer to our SEC filings, which can be found at fcpt.com. All the information presented on the call is current as of today, October 29th, 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'll turn the call over to Bill.

Good morning, and apologies for the technical difficulties. Following my initial remarks on our Q3 results and the state of the market, Patrick will comment on our investment activity for the quarter and current capital position. 2026 has been a banner year for FCPT. Year to date, we have acquired a record volume of $410 million of properties at a blended 6.6% cash cap rate and 7.2% GAAP cap rate. Over the past 12 months, we've acquired $505 million of properties. Despite the record volume for FCPT, we have remained highly consistent with the investment characteristics that have long defined FCPT's strategy, namely low basis properties, conservative rents, strong store-level profitability, and leading tenant operators.

We fully funded the volume this quarter with two recently closed term loans that featured coupons in the mid-4% to low 5% range, utilizing our debt capacity to generate spreads of over 200 basis points as compared to historic investment yields. We also updated our dividend policy to monthly payments beginning in August and subsequently increased the dividend by 3.5% for the fourth quarter. Finally, we were excited to announce a few weeks ago that Darden extended 100% of all Olive Garden and LongHorn leases maturing in 2027, along with the early extension of a handful of 2028 lease maturities. These properties represent the first extension decision by Darden since FCPT's spin-off back in 2015. We note that the extensions do not require rent reductions or capital contributions from FCPT, and Darden's rents will continue to increase by 1.5% annually.

To clarify, these are individual leases where the tenant made the decision in each and every case to extend under contractual terms. We also note that we have continued to significantly diversify. Darden is now just 40% of cash rent, and 42% of our rents come from sectors outside of casual dining. This includes medical retail, now at 16%, automotive service at 13%, and quick service at 10%. Turning to the current acquisition environment, which has changed a great deal in recent months. Investors consistently ask us how this will impact our pipeline efforts. Our answer is that since inception, FCPT has been consistent in modulating acquisitions relative to our cost of capital. This happened most recently when rates rose in 2023.

At that point, rising rates made it difficult to invest accretively, and so we subsequently stopped nearly all acquisitions and aggressively moderated additions to our pipeline from late 2023 through mid-2024. Basically, we didn't buy anything. Once our cost of capital improved, we hit the gas with vigor and subsequently invested nearly $1 billion in new accretive real estate investments from 2024 through today. Capital allocation discipline is built into how we operate. We do not provide acquisition guidance. Our team's incentives are not tied to volume. This alignment lets us grow when it's accretive and stay patient when it isn't. It's times like these when having clear mental frameworks designed in non-turbulent times makes all the difference to investors. Other companies may say they will modulate guidance in the face of weakening spreads, but we actually have an established track record of pausing investments.

Said simply and to be clear, FCPT's management will not sacrifice our shareholders' interests to simply pursue scale. As for the state of the company in this turbulent environment, we believe that we are very well positioned to weather continued macro headwinds. First, our granular acquisition strategy has created a highly fungible portfolio among the lowest per property value at risk within our industry. Our lease renewal rates are very high. Occupancy remains well over 99%, and our rent coverage in Q3 was 5.3 times for the majority of our portfolio that reports this figure. Our rent coverage remains the best coverage within our industry, and what we believe is a reflection of our conservative and analytical underwriting. Second, our three core restaurant brands, Olive Garden, LongHorn, and Chili's, continue to outperform their peers and grew sales in the most recent quarter by 1%, 6.8%, and 10.1%, respectively.

The value proposition these restaurant brands offer their customers is tremendous, and they have shown through consistent historical growth in many different macroeconomic cycles. Additionally, our Mission Pet Health properties have coverage levels above six times. This is the exact type of portfolio you would want in a turbulent backdrop. Third, we have very limited credit loss over our 11-year history. That result isn't an accident. We are aligned with leading operators in our chosen sectors and avoid experienced limited lease sectors and overrented properties. We try to keep it simple by acquiring low basis fungible properties in what we believe are e-commerce resistant sectors. The last point I'd like to touch on is yesterday's announcement of our inaugural share repurchase program. I'm going to go into some detail here on how we are thinking about share repurchases.

One of our long-term mental models is our heat meter in the green, yellow, and red zones. In FCPT's history, there have just been a handful of times of short-lived red zone windows over the last decade. At the spin, during COVID, were the two prominent ones, where share repurchases would have made true economic sense. We believe the current landscape presents the best opportunity for FCPT share repurchases since our company was founded. As such, our board has authorized a $100 million share repurchase program, and if conditions can meet our thresholds, then we will seek to utilize it. Let me trace the steps of how we think about this, which is influenced by the writing of Michael Mauboussin on capital allocation. The first decision is whether there are property acquisitions that clearly exceed our cost of capital.

It is because we are very analytical in assessing the quality of the properties we buy, we can do this step without quality creep. This is where we have been as a company for a significant majority of our existence, but not today. Perhaps cap rates will follow interest rates with a lag, but as of today, we think external cap rates are generally too low, and in most instances, investment spreads will be thin to negative for the investments that meet our high-quality thresholds we hold or substitute. We next make sure we are conservatively levered. We want to make sure our balance sheet is rate safe. Pat has done a terrific job here. We have few near-term maturities, a largely fixed rate structure, and we remain within our modest target leverage range. Then we make a determination of whether we believe our stock represents a compelling investment opportunity.

By this, I mean below where we believe in our intrinsic value is. In the final check, we compare the risk-adjusted returns of new acquisitions, debt reduction, liquidity preservation, and share repurchases. FCPT has always been price disciplined in where we issue new shares. In the exact same vein, we will seek to be very price disciplined when we buy back shares. We will run this analysis every time we repurchase stock in the market to confirm these conditions are met. It is also worth noting that our program does not require us to buy a certain number of shares and allows us to suspend or terminate the program at any time, i.e., we will be valuation sensitive. Given the lack of tenant issues and our strong confidence in the portfolio, we view FCPT's current stock price as a very compelling investment today.

I would note that it is public that I personally purchased FCPT stock recently. This is not a theoretical exercise for me. Before handing it back over to Pat, I want to offer sincere gratitude to Josh Zhang for his contributions to FCPT. Josh joined us way back in 2016 and was instrumental in building our platform. Josh will be leaving FCPT in Q4 to take a personal sabbatical before exploring an entrepreneurial opportunity. He remains a big fan of FCPT as we are of him, and is another proud member of our alumni base. We wish him the absolute best. I know I speak for myself, Patrick, the rest of the company, the board, when I say it has been a pleasure getting to know him professionally and personally. Wherever he ends up, they will be extremely lucky to have him. Over to you, Patrick. Thanks, Bill.

Very well said, and I couldn't agree more. Josh has been a close colleague for a decade and represented on FCPT. We're very grateful for his many efforts, which helped us evolve from startup to a seasoned net leasing investment vehicle. Now I'll shift to a review of the Q3 acquisition activity before touching on our balance sheet. In Q3, we acquired 120 properties with a weighted average lease term of 10 years for $326 million at a blended 6.6% cash cap rate or 7.1% GAAP cap rate. The score was weighted towards medical retail with the previously announced acquisition of 102 Mission Pet Health properties. We also continued to source and execute our regular-way investment pipeline, spanning restaurants, automotive service, medical retail, and other sectors across 14 distinct transactions in Q3.

Those investments included newer subsectors for our platform, with acquisitions of a D&W Fresh Market grocery property and a Drilling Tools International light manufacturing facility. In both cases, we've been monitoring these sectors for years and been waiting for the right opportunities with real estate credit and pricing quality to fit FCPT's standards and investment profile. We'll continue to evaluate investments in these subsectors and expect that over time, we'll expand our opportunity set as we build domain expertise. I note that we did end up killing a handful of deals this quarter, so we got more selective or ran into issues during due diligence that we thought would impact the long-term economics. That resulted in net dead deal costs of around $100,000, which is AFFO. We don't love killing deals, but are more focused on avoiding long-term problems and deals that don't meet our return thresholds.