Four Corners Property Trust, Inc. (FCPT) Q4 2025 Earnings Call Transcript

Hello everyone and thank you for joining the FCPT fourth quarter 2025 financial results conference call. My name is Claire and I will be coordinating your call today. During the presentation you can register a question by pressing star followed by one on your telephone keypad. If you change your mind please press star followed by two on your telephone keypad. I will now hand over to Patrick Warneg, Chief Financial Officer to begin. Please go ahead.

Thank you Claire. During the course of this call we will move 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 protect our assumptions are not a guarantee of future performance and some proved to be incorrect for a more detailed description of some potential risks please refer to our fcc guidelines which can be found at fcpt.com all the information presented on this call is current as of today february 12 2026 in addition reconciliation to non-GAAP financial measures presented on this call such as FFO and AMFO can be found in the company's supplemental report. Scott, I'll turn the call over to Bill.

Good morning. Following my initial remarks, Josh will comment on our investment activity and Patrick will discuss financial results and capital position. This past November marked our 10-year anniversary as a public company. Over the past decade, we have grown from just four employees with 418 properties leased a single tenant into a platform with 44 team members and 1,325 leases we've acquired 2.3 billion of properties and paid out over a billion of dividends to our shareholders we are proud of the portfolio and company and we've built and look forward to continuing our mission to drive shareholder value via conservative and thoughtful capital allocation during q4 we acquired 95 million of net lease properties at a seven percent blended cap rate in total during 2025 we acquired 318 million of net lease properties we largely funded these acquisitions with equity we raised on the atm via forward issuance one important note on our acquisition volume is we accomplished this without the benefit of any large portfolio transactions most of the deals in 2025 were mid-sized transactions between 5 and 20 million furthering our extremely granular and selective portfolio construction via high quality acquisition. We did this by staying the course on what has become core to FCPT's brand, a focus on attractive real estate occupied by creditworthy tenants without sacrificing quality for volume or padding investment spread. Even in an era of increased competition for larger net lease portfolios, we believe that we have a business model that can scale and source attractive opportunities for growth. Our in-place portfolio retains its workers quality with zero exposure to problematic retail sectors such as theaters, pharmacies, high rent car washes and experiential retail. We have sidestepped major tenant credit issues including zero bad debt expense in 2025 and have very little vacancy in the portfolio. Our rent coverage in Q4 was 5.1 times the majority of our portfolio that reports this figure. This remains amongst the strongest coverage within the net lease industry. To that end, our core anchor tenants of Olive Garden, Longhorn, and Chili's continue to be leaders within the net lease tenant universe. Most recently, Brinker reported Chili's same-store sales growth of 9% for the quarter ended December 2025, which represents a two-year sales growth of plus 43%. Olive Garden and Longhorn reported same-store sales growth of near 5% and 6% respectively for the quarter ended November 2025. Truly amazing results from our largest tenants which represent over 51 percent of our portfolio rents on a combined basis. This improves our portfolio metrics and further demonstrates the benefits of thoughtful asset selection in alignment with best-in-class tenants. On the topic of our Darden assets, Darden announced last week that they are shutting down the Bahama Breeze brand and are converting many of these locations to other Darden brands. Our current Bahama Breeze exposure is just 1.3% of base rent across 10 properties, which is placed to an average rent of $341,000 per property, which is very reasonable. While it is early, we are in discussions with Darden about these properties, and as of now, we do expect several of these stores to be converted to other Darden concepts. Further, these properties are all subject to leases with a minimum of 1.7 years of term remaining, during which time Darden will continue paying rent taxes, insurance, and all other costs at these locations while we seek new tenants. In the event that they do become permanent closures, we have already received significant impound inquiries about backfilling locations over the past week. We have lots of confidence in the quality of the real estate of these properties and expect they could be re-tenanted at similar rents. It's worth noting the impact of our proactive approach to portfolio management here. We sold two high-rent Bahama Breeze locations back in 2016 to 2018 in the 4.75 to 5 percent cap rate range this reduced our exposure to the brand by two million dollars in rent or roughly 35 percent of where it would otherwise be today we continue to make meaningful progress in the area of diversification olive garden and longhorn are 32 percent and nine percent of our rent today versus a combined 94 percent of the spin-off while 37 percent of our rents come from outside of casual dining this includes automotive service at 13 percent quick service restaurants at 11 percent and medical retail at 10 percent our deal sourcing remains focused on central retail and services in our view creating a prudently positioned portfolio with limited exposure to tarot sensitive sectors and a strategy centered on everyday consumer demand we are constantly evaluating new retail categories as we look to expand the top of our funnel for investments similar to our decision to expand into automotive service and medical retail properties we consider business and ai resilience availability credit worthy tenants real estate quality and pricing relative attractiveness patrick is going to discuss this in more detail but a key takeaway is that since q3 2024 our last circuit 520 million of acquisitions essentially all of the 171 buildings purchased over the last 18 months have been funded 85 percent with equity only raised at attractive pricing and the balance funded with low rate term loans so today our balance sheet is over equitized i'll repeat that today our balance sheet is over equitized with net leverage near five times further we didn't raise that when we would have required a seven percent plus coupon now we can access much more favorable debt capital markets with a coupon rate in the 4.5 to 5.5 percent range depending on the structure and term whether term loans or or notes this is much more attractive than when we receive cap rates today we are proud of the year that we put together for both the capital raising and

acquisition funds the team has shown great growth over the last 10 years since inception and we feel that we are well positioned heading into 2026. we enter the year with low leverage and ample dry powder for opportunities that may arise over to you josh thanks bill i'll start with a review of this quarter's activity more details on 2025 investments in q4 we acquired 30 properties for the weighted average lease term of 10 years for 95 million dollars at a blended seven percent cap rate this was a 20 basis point expansion over the previous quarter and our highest blended cap rate in 2025. we finished the year with 105 properties acquired for 318 million dollars at a 6.8 percent blended cap rate this represents an average basis of three million dollars per property and continues our strategy of partnering with credit worthy operators and selecting fungible low basis properties to further protect against any downside looking back 2025 was one of our busiest years to date our total investment volume increased 20 from 2024 and we had 53 unique transactions said another way our team was able to post stellar results without reliance on large portfolio this is important to note because one these large deals often command pricing premiums for the ease of putting a greater amount of capital to work and two they often require buyers to accept all or nothing where a good chunk of properties may not fit our underwriting thresholds that said our team remains capable and ready to execute on these larger opportunities when the right deal comes around but we are encouraged our platform can still post significant volume in years where we do not anchor a large portfolio deal sitting in the market in q4 we also expanded the team's capabilities outside of our main three categories restaurants automotive service and medical retail with our acquisition of a sprouts grocery store and our first equipment rental acquisition of the united rentals property as bill mentioned our team is constantly evaluating new opportunities in adjacent sectors to understand the resilience of the business the way the attractiveness of their credit and real estate locations versus our existing portfolio we feel that both the grocery and equipment rental sectors fit our existing underwriting approach of focusing on recession resistant essential service retailers with high quality and fungible real estate similar to how we approach our entrance into the automotive service and medical retail sectors that is by dipping our toes and building extensive knowledge and expertise before launching an official strategy we will follow the same pattern here While grocery and equipment rental are newer categories for us, we chose these specific properties because of their similarities to the assets we regularly purchase in our existing portfolio. For example, both are at least the best-in-class credit-worthy operators in the respective subcategories. Sprouts is a publicly traded grocer with more than 400 locations across the U.S., no debt. Our $8.6 million basis in this location is also much lower than the $10 to $15 million dollars we typically see for the branded market united rentals is also a publicly traded company with over 1600 locations across the us and is rated double b plus by smp they're the largest equipment rental provider in the nation and have a demonstrated track record of strong operation we'll continue to evaluate similar opportunities in these sectors but only so long as they match our existing underwriting thresholds and investment criteria now reflecting on our strategy going forward for 2026 2025 evidence substantial repeat counterparty transactions a trend we expect to continue coupled with the expanding top of our funnel we expect 26 to be

another strong year of increased diversification and expanded platform capabilities patrick bethue thanks josh i'll start by talking about capital sourcing in the state of our balance sheet we have full capacity under our 350 million dollar revolver and feel that we have the liquidity to continue executing our business plan in q1 and into 2026. with respect to leverage at the end of q4 our net debt to adjusted even degree is just 4.9 times inclusive of outstanding net equity points excluding our forward equity balance our leverage is 5.1 times this is our sixth consecutive quarter of leverage below 5.5 at the very bottom of our stated leverage range from five to six times we've now fully settled our forward equity balance in 2025 but with a fully available revolver we feel we still have ample capacity on the best side after including debt capacity and free cash flow we have over 220 million dollars in liquidity before reaching made five times leverage and substantially more than that before approaching six times said another way we believe we could utilize low interest rates up for all acquisitions in 2026 and still remain under our self-imposed leverage as always we aim to be opportunistic to achieve the best cost of capital on our funding decision based on market we are encouraged by the current state of turn one market which was much more constrained just a few years ago as a reminder five-year turn once has historically been priced at 95 basis points over sober or an all-in rate today on approximately 4.6 percent after sloss and before fees private placement notes would be higher than that but also creative to current market cap rates while offering longer term and better we have 95 percent of our floating rate debt fixed through november 2027 at three percent versus spot rates today of four percent overall 98 of our debt staff is only fixed and our blended cash interest rate is four percent remain we maintain a very healthy fixed charge coverage ratio of 4.8 times i'd also like to remind everyone in c3 of last year we removed the sofa credit spread adjustments and basis points to our interest expense on the revolver and term loans our new borrowing rate on term loans the silver plus 95 basis points and revolver so for plus 85 basis points set a positive flow through the affo of approximately 600 000 per year turning to debt maturities including extension options we have no debt maturities until december 2026 when 50 million dollars in private notes comes to our sagged maturity schedule will ensure we do not face a significant maturity wall at any point thereafter that said we are focused on the small upcoming maturities in 26 and 27 and have been very encouraged by the liquidity in the bank market today as well as the very track credit spread being achieved in the private placement and public bond factor that in other words we believe we have numerous avenues to address these minor maturities that track breaks entering some of the earnings highlights for q4 it was 42.4 africa per share of 45 cents and our full year africa was a dollar 78 per share representing 2.9 percent growth over 20 24. q4 capital income was 67.5 million dollars representing growth of 11.1% for the quarter compared to last year. Annualized cash-based rent that leases in place at the quarter end is $264.2 million, and our weighted average five-year annual cash rent escalator is 1.5%. Cash G&A expense was $18 million for the year, at the very bottom of our guidance range, and representing 6.9% cash rental income for the year, compared to 7.1% for the prior year. This improved operating leverage illustrates our continued efforts at Efficient Group and the blankets of our improving scale our new guidance range for cap gna in 2026 is 19.2 million dollars to 19.7 million dollars as for managing our lease maturity profile 95 of the 41 leases expiring in 2025 remain occupied today this includes a high renewal rate and two properties that were quickly released to new tenants additionally we've started to make progress on our 42 leases expiring in 2026 which now represents just 1.5 percent of abr down from 2.6 percent at the start of 2025. Our portfolio occupancy remains very strong today at 99.6 percent benefiting from efforts to release our very limited number of that bidding in Cyprus. We collected 99.5 percent of base rents at C4 and 99.8 percent for the year. Last quarter did not see any material changes to our collectability or credit reserves. We want to call out one new slide we introduced to the presentation. It's on page 11. We regularly see private market cap rates drops properties similar to the properties owned in our own portfolio so our public valuation has lingered lower recent months we thought it would be helpful to compare our current implied cap rate to the blended cap rate recently sold on these properties it demonstrates a sizable gap between the higher value of our underlying asset or the stocks are actually trading today that we'll turn it back over to claire for questions thank you to ask a question please press star followed by one on your telephone keypad now if you change your mind please press star followed by two.

When preparing to ask your question, please ensure your device is unmuted locally. Our first question comes from Michael Goldsmith from UBS. Michael, your line is now open. Please go ahead.

Good morning. Thanks for taking my question. First question is on the move into United Rentals and industrial outdoor storage. Can you just talk a little bit about the market you see there, maybe the total addressable size? You know, it feels like some of your net lease peers have been moving into that space. So what would you see from like a competition perspective there? And then if you could talk a little bit about how the cap rates in that space compared to the rest of your portfolio, that would be helpful. Thanks.

Thanks, Michael. Well, I'd say I've been following the sector for a long time. I was chair of the investment committee at Gramercy 15 years ago, and we were doing quite a bit of this. It's attractive, it's a lot of the value is in the land residual. If you're careful, you can get in at a good basis. There's credit-worthy tenants, it's hard to get new sites entitled. so there's some entrenchment if you can find uh an existing site very large addressable market um you know very defensive um and cap rates that that make sense um so we've looked at a lot of them um we'll continue to to pursue that strategy and it's there are players who focus on it uh now one of them was just taken private by brookfield um but it's a it's an attractive um space as is grocery by the way um but we found that uh very often high credit grocers have you know a much chunkier um purchase price than we typically plan but but we're looking at both of those sectors and others on a continuous basis but uh to answer your question on on tam you know we can get back to you but it's, you know, it's enormous compared to the size of our company.

Got it. Thanks for that. And then second question, just following up on the Bahama breeze. It sounds like you got ahead of this in a little bit in the prior years, though you still have a little bit of exposure here. You know, I guess, like, can you just kind of I guess the question is just it sounds like rents are about the same of where like the level of interest is high, but rents are about the same. Is that the right, is that the case? And then also like if you compare the publicized list, I think you've got like four or five locations remaining. So can you just kind of confirm that? Just talk a little bit more about that, thanks.

Yeah, I think that's right. There'll be a handful that get converted to other Darden brands. There'll be, there may be one that we swap out with Dardu for another property and there'll be a couple that um in a year and a half plus we have to release we've been inundated with people interested in these sites they're very well located um and I think we're being pretty conservative on the rents but it you know it's we've sort of been working on this for a week and we're sorting through a lot of people who are interested in taking the sites thank you very much good luck in 2026.

Thanks, Michael.

Thank you. Our next question comes from John Kikowski from Wells Fargo. Your line is now open. Please go ahead.

Good morning. Thank you for taking my question. Maybe just to stay on Bahama Breeze here. Bill, forgive me if I miss in the opening remarks, you talked about the rents there. Are you able to talk about the performance at these assets? I'm just, you know, if they're getting converted, would that be at the same rent? And then for the assets that would need to turn in a year and a half. I mean, if you're getting substantial interest at this point, is there the potential for even a positive mark to market? I'm curious like what the total loss is that you're kind of making it internal estimates.

Yeah, I don't, I don't think we're baking in losses at all. These brands are, Bama Rees as a brand had limited market expansion simply I don't think a lot of the U.S. has a view on what Bahamian cuisine is so it worked in the southeast and it just wasn't relevant to the total size of Darden and so they'll convert some of these they have existing leases so there won't be a changed in the rental rate would be my assumption but we'll have you know brand new stores uh with higher auv brands and then for a couple that will get back and we'll get back um i feel good that

we'll be able to release them although it's early days so and you know we're talking about a couple of stores on a portfolio of 1325 again this is patrick i would just add that uh you know when you look at that press release starting put out and the list of sites that they want to convert there's still some moving pieces there um and you know you have to factor in some of those stores that have really high quality real estate are restricted by covenants by other tenants nearby or by the shopping center itself so um you know darden's interest in converting a lot of these sites was clear and it's just a matter of what they can do with any restrictions that are on those properties but the demand in the last week has been um i'd say tremendous from other tenants

that want to backfill these locations okay that's helpful uh thanks pat that maybe one another one for you just on the the balance sheet um you know you've called the forwards i think in the opening remarks, you said 220 of liquidity gets you to do 5-5. I'm just curious how you think about managing the balance sheet. I know, Bill, you kept saying over-equitized. At what point, the high end is 6, but maybe as you get to 5-5 in an effort to not necessarily reach the high end, do you start to maybe pull on thinner spreads on equity at a certain point, or do you kind of stick to your guns and you'll ride that number up to 6? And then at that point, if the equity is not, you know, cooperating, then you start to pull back on the acquisition cadence. I'm just curious how you think about all scenarios. And obviously, if the risk off trade works, then great, we get a cost of equity, we keep moving, but just trying to think about all scenarios here.

Yeah, I think we've evidenced that we're disciplined in our capital allocation, that we don't go out the risk spectrum on acquisitions. You know, we don't provide guidance for a reason but that said we have lots of runway with very creative acquisitions funded with low leverage inexpensive financing that's readily available today in a way that it wasn't readily available a couple years ago so i think we feel like we're in great shape and we have minimal maturities to address. So I think we have a long runway of acquisitions and our stock has been soft. And I think, as Pat mentioned, added some detail in our presentation of how well supported by NAB we feel our stock price is. But I think it offers real value today.

Got it. Thank you.

Thank you. Our next question comes from Anthony Pallone from JP Morgan. Your line is now open. Please go ahead.

Great, thanks. Can you talk about just red lobster exposure? Because I think that's another one that's been out there talking about perhaps more store closures.

Yeah, I don't think there's much to say. The brand is doing much, much better than it was under prior ownership. um our stores are predominantly in a master lease it was affirmed when they restructured um at the same rent um i think we we feel quite good about that okay and then on the diversification strategy uh can you maybe just talk about anything that that you don't want to get into or other areas of interest that that you haven't quite tapped yet yeah i think you know we've been very clear we have a page in our presentation of sectors that we've avoided i would i would double down on what's on that page you know um we try to focus on a balanced real estate and credit approach and we try to stay within sectors that have been through cycles uh and so you know we don't own pickleball facilities that cost 20 million dollars we don't own nine million dollar car washes we don't own corporate headquarters in the middle of nowhere um where you can get more spread and it works typically for a while but on lease renewal uh you'd have a lot of risk so i think we take a much more balanced approach than our peers and shown in the last decade that our credit performance has been best in class okay thanks thank you Our next question comes from Rich Hightower from Barclays.

Your line is now open. Please go ahead.

Hey, guys. I just want to follow up on one of the earlier questions, you know, but what's the real comfort level with approaching that sort of six times upper limit on leverage, if that's the only option the market gives you, you know, as far as executing the sort of plan for 26 on growth?

Well, I think that's quite a bit of a ways off. So, you know, hard to make predictions that many months in the future. You know, so I think we feel very good that we have, you know, a couple hundred million dollars of acquisitions before we even have to be thinking about that. And honestly, you know, we've had the same leverage ceiling for some conception. We've essentially never been close to it. you know, so I think that that track record speaks volumes.

All right, fair enough. I mean, as far as the, I guess, that sort of early vintage of Darden leases coming due in 27, and I wonder if I've asked this before, but, you know, where do you guys sort of peg the mark to market or the recapture rate potentially on those, you know, upon renewal, you know, that sort of thing?

They have multiple five-year extension options at one and a half percent growth so the continuation of that one and a half percent escalator so i would say that our expectation is the vast majority of those will uh renew at the at the one and a half percent contractual option got it thanks very much go yeah of course thank you our next question comes from wes gulliday from bar your line is now open please go ahead hey uh good morning guys um just looking at your your uh you know your valuation chart you put in the presentation you have a lot of assets that will trade, call it mid, low fives and up to the low sixes.

Would you have any appetite to just start disposing to some of those assets and recycle it into a little bit higher yield and higher growth assets and get the diversification higher?

Yeah, it's always an option, Wes. We've done very little of it. Where we have done it, frankly, was a number of years ago and selling you know bomb a breeze assets at extraordinary pricing with very high rents we haven't had to do it in the past we don't have to do it today the darden assets are very very high quality and very hard to you know replace they trade for you know strong values um for a reason. Darden as a company has a $25 billion market cap. Its credit default swaps are like a G7 country. So they're hard to let go of, to be honest. It's an option. We know how that works. I would remind everyone that there are REIT rules. You can't just sell properties one by one uh like some people assume you can but it's an option we haven't had to do it yet nothing wrong with doing it but um hasn't been primer okay and then you did have a rare impairment in the quarter what drove that uh it was a quick service restaurant that we purchased right at the beginning of our life it was a party's in gladstone alabama We've had a hard time releasing it. It's a tiny property. It's kind of hard to write down properties, to be honest. We found that the conditions were right to do it, but it's been vacant for a while. We've had a hard time releasing it. But, you know, one property over $1,325.

Yeah, not bad. And one last one on the Red Lobster. I think you mentioned they were ground leases. Is that for all of them?

And can you share the rent level? they're they're mass released and again they were just reaffirmed so um i would say there's been a tremendous emphasis on credit issues that aren't credit issues in the q a and i would would ask listeners to to sort of see the force for the trees the story here is that we have substantial growth in 2026 that'll be really accretive all right thanks for the time thank you our next question comes from Mitch Jermaine from Citizens Bank.

Your line is now open. Please go ahead.

Thank you. I think, Bill, you talked a little bit about, you know, obviously bigger ticket for a grocer. I'm curious how, you know, do you potentially look to maybe scale up in that sort of sector?

Yeah, I think it's very similar, Mitch, to how we looked at medical retail and auto service you know we we spend a lot of time doing research up front um you know we're we're conservative in what we purchase um and then as we are active in the market um it helps with with seeing deals and you get more deal flow so it's it's no different than what we've done in the past to be honest it's just the attributes of different um property types you need to be sensitive to. And I think because we've been cautious and you've seen the positive results on our credit results.

And do you envision doing direct deals with grocers or maybe leveraging some of your shopping center contacts to possibly scale it up?

It's all of the above, Mitch. We we take a pretty agnostic view on sourcing. So we've sourced things directly, you know, an auto service we've had a number of brands that we've had repeat sell these back business, but we will look at, you know, we'll look at everything that we can.

Gotcha. And last one for me, is anything not hitting the strike zone today in terms of where you've been allocating capital? Like, are you pulling back in any way at all? Or it's all, as long as it continues to meet your underwriting criteria, where it's all systems go?

Yeah, I think it's the latter. You know, we've been pretty, you know, thoughtful in what we've acquired and we don't tend to have a view of buy it. And if the performance starts declining, you know, we'll be able to sell it at a great price. You know, that hasn't been the way we've looked at the world. You know, we've proved things in the past, but it's been minimal. And I think it reflects what we've purchased, we feel really good about.

Thank you, good luck this year. Thanks.

Thank you. Our next question comes from Jim Kimmert from Evercore ISI. Your line is now open. Please go ahead.

Thank you very much. Perhaps a derivative of where Mitch was heading. Could you remind me, what is the percentage of dollars over the past couple of years that really were direct deals with developers and where you didn't have a broker involved? Because I'm presuming that the former gives you a better yield.

I'm just curious how that's been playing out proportionately. proportionately yeah i don't think i wouldn't look at it that way jim i i think that the uh the returns are pretty similar um you know sophisticated large brands have access to information uh they know what their properties trade for um you know there are some ease of use when you do repeat transactions and you sell these back because often you have existing documents that you can replace or you know who the people are and and you know the sort of cadence of information flow can be better but i don't think that there's a um you know some meaningful advantage of doing originated sales backs not that we're against them in any way but i don't think i don't think that there's a big difference the markets figured it out fair enough thanks Thank you.

As a reminder to ask a question, please press star followed by one on your telephone keypad now. We will now pause for any questions to be registered. We currently have no further questions, so I'd like to hand back to Bill Lenahan for any closing remarks.

Thank you, Claire. For 2026, we're in the fortunate position of being able to use very economical long-term debt to fund new investments. We see ample external acquisition opportunities and based on cap rates today we expect healthy investment spreads and growth for the year i'd emphasize that in this environment we do not anticipate slowing down given our dry powder and where we are seeing our cost of debt capital our team will be on the road for some non-deal roadshows in los angeles and chicago the weeks of march 10th and march 17th respectively we'd love to meet with you in person so please reach out to patrick or myself to coordinate Thank you all and look forward to seeing many of you in person this year.

Thank you. This now concludes today's call. Thank you all for joining. You may now disconnect your lines.