Four Corners Property Trust, Inc. Q2 FY2025 earnings call

• Acquisitions: Acquired $84 million in Q2 2025 at a 6.7% blended cap rate, with $344 million of acquisitions over the last 12 months. Focused on high-quality properties and creditworthy tenants. Automotive sector made up 68% of Q2 volume, including sale leasebacks.
• Portfolio Diversification: Grew from 418 properties in 2015 to 1,260 leases across 165 brands by 2025. Casual dining's rent contribution decreased from 94% in 2015 to 66% in 2025, with non-casual segments (auto service, medical retail, quick service) accounting for 34% of rent.
• Rent Coverage: Q2 rent coverage was 5x for most of the portfolio. Bad debt expense was extremely low, with $1.76 million total since 2016 compared to $1.5 billion in rent collected.
• Capital Sourcing: Raised $24 million in equity in Q2 2025, with nearly $0.5 billion raised over the last 12 months. Net debt to adjusted EBITDAR was 4.5x, with leverage near a 7-year low.
• Financial Highlights: AFFO per share was $0.44, cash rental income was $64.5 million (+11% QoQ). Cash G&A expense was 6.9% of cash rental income, improving operating leverage.
• Lease Maturities: 41 leases expired in 2025, with over 85% of tenants extending or indicating intent to extend. Portfolio occupancy was 99.4%, and base rent collection was 99.8% in Q2.

Casual dining accounts for 66% of rents, with Olive Garden making up 33% and LongHorn 9% of rents. Automotive service constitutes 12% of rent, medical retail 9%, and quick service 11%. In Q2 2025, cash rental income was $64.5 million, representing an over 11% growth from the previous year. AFFO per share was $0.44, a 2.8% increase from Q2 2024. Annualized cash based on leases in place at quarter end is $249.8 million, and the weighted average 5-year annual cash rent escalator remains at 1.4%.

• No acquisitions guidance provided, but disciplined in pricing to meet quality and return thresholds. - Leverage remained below the stated target range of 5.5 to 6x for the fourth consecutive quarter. - Liquidity was strong with approximately $500 million available for acquisitions, and near 0 debt maturities for nearly 2 years.

• Cap rate flattening and flight to credit quality could pressure net lease cap rates. - Tariff impact not fully settled, but service industry restaurants expected to be less impacted due to domestic supply chains. - Potential pullback in consumer spending from recession or high inflation.

Q: 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 -- 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 you're winning.

A: Yes, 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 sets 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. It's sufficient, but not terribly attractive.

Q: You acquired some Olive Gardens in the quarter, and I know you're also looking to diversify the portfolio. So does this imply that you kind of reached our comfortable level of Darden exposure that you're interested in maintaining going forward?

A: We've consistently diversified the Darden exposure down, but we haven't hesitated to buy Darden-related assets when we found ones that we really liked and the pricing was great and that played out in this quarter. Very often, the ones that we're buying are outparcels where the rents are really low. Garden is doing fantastic. It has an equity market cap over $25 billion. It's credit default 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 is right.

Q: 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?

A: I think it really comes down to cost of capital and what the markets 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 time frame. So a little too soon to tell. I'll have more detail on that next call.

Q: You had a lot of transactions skewed to auto services in the quarter and I was wondering if that was just where the deal flow happened to be or if that was a bit more intentional than usual?

A: Just where the deal flow happened to be precisely.

Q: Shares remaining to be settled under forward are now around $150 million, down from $250 million last quarter. Is this the 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 where your stock price is currently?

A: It's probably more the latter.

Q: First one for me is, is deal flow picking up? And has the competitive landscape been changing at all?

A: I think the deal flow has been quite consistent. And we're always looking at everything from very substantial portfolios down to $1 million 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.

Q: Bill, it 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 to maybe start to pull some of that forward here?

A: 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 lease. These are properties that are highly productive with rents that are very reasonable.

Q: 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 -- anything proactive that you guys are doing on your end there?

A: We had one that was closed -- 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 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, on a ring road of one of the best malls in the country. Other than that, we have pruned our Bahama Breeze exposure right after spin. 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.

Q: Most of my questions were asked, but I saw your recent acquisition announcement of a veterinarian retail property. So a 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?

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