FCPT Third Quarter 2026 Financial Results Conference Call - FOUR CORNERS PROPERTY TRUST INC

Financial Performance:

• Q3 2026 cash rental income reached $75.2 million, up 13.7% year-over-year.
• Annualized cash base rent for leases in place at quarter-end was $292.8 million, with a weighted average 5-year escalator of 1.6%.
• Q3 FFO per share was $0.46 (a 2.9% increase), though slightly impacted by one-time non-recurring costs including a ~$100k Oklahoma state tax catch-up and deal costs from terminated acquisitions.
• Cash G&A expense was $4.7 million (6.3% of cash rental income), down from 6.5% last year, demonstrating operating leverage.
• Q3 SFO per share growth was 2.9%, normalized for the noise of the quarter.
• The company reaffirmed 2026 cash G&A guidance of $19.2–$19.7 million, expecting to close at the bottom of the range due to scale efficiency.
• Rent coverage ratio for the majority of the portfolio was 5.3x, the best in the industry.
• Occupancy remains at 99.5%, with 99.7% of base rent collected in Q3 and no material changes to credit reserves.

Guidance and Future Outlook:

• No specific acquisition volume guidance provided; management maintains a price-disciplined approach and will not sacrifice shareholder interests for scale.
• FY 2026 FFO guidance remains in the range of $1.80–$1.90 (implied from annualized run rate discussions), with management confident in 2027–2028 growth prospects due to recent balance sheet actions and acquisition volume.
• Management expects underlying earnings to run higher in 2027 as non-recurring Q3 costs fade and new acquisitions (like Mission Pet Health) contribute a full quarter.
• Dividend policy updated to monthly payments (effective August) with a 3.5% increase for Q4.
• A $100 million share repurchase program has been authorized; execution is valuation-sensitive and contingent on stock price being below intrinsic value and acquisition spreads being thin/negative.

Business Segments and Product Lines:

• Q3 acquisitions included 120 properties totaling $326 million, with a weighted average lease term of 10 years; blended cash cap rate was 6.6% and GAAP cap rate 7.1%.
• Significant Q3 volume driven by the acquisition of 102 Mission Pet Health properties (medical retail segment).
• Portfolio diversification is progressing: Darden now represents 40% of cash rents; sectors outside casual dining account for 42% (Medical Retail 16%, Automotive Service 13%, Quick Service 10%).
• Entered new sub-sectors with the acquisition of G&W Grocery Property and a Drilling Tools International Light Manufacturing Facility.
• Darden (Olive Garden/Longhorn) extended 100% of 2027-maturing leases and early extensions of 2028 leases without rent reductions, with rents escalating 1.5% annually; this marks the first such extension post-spinoff.
• Core restaurant brands (Olive Garden, Longhorn, Chili's) outperformed peers in sales growth (1%, -6.8%, -10.1% respectively) despite market headwinds.

Market and Competitive Landscape:

• Acquisition environment remains challenging; cap rates have risen but not sufficiently to offset the repricing of debt and equity costs of capital.
• Management notes active market re-trading by sellers, but investment spreads remain thin to negative for high-quality assets meeting their thresholds.
• Demand for net lease in the private market is strong, with many private platforms seeking partners to deploy capital.
• Company maintains a highly fungible portfolio with low per-property value at risk compared to industry peers.
• Tax dynamics regarding bonus depreciation (potentially expiring Jan 1) are driving activity in gas station and car wash asset sales, though FCPT holds few such assets.

Risks and Challenges:

• Macroeconomic headwinds and rising interest rates have compressed investment spreads, making accretive acquisitions difficult to find.
• Potential market volatility could impact the timing and pricing of share repurchases.
• Management noted killing a handful of deals in Q3 due to due diligence issues or long-term economic concerns, resulting in ~$100k in deal costs.
• Limited near-term debt maturities (only $75 million, <5% of total debt, due before Feb 2028), though management must carefully manage leverage if asset sales or share buybacks increase it.

Management Commentary and Tone:

• Tone was highly confident and disciplined, emphasizing a "heat meter" framework (green/yellow/red zones) for capital allocation.
• Management expressed strong conviction that the current stock price represents a compelling value opportunity, with the CEO personally purchasing shares.
• Emphasized "patience" in capital allocation; the company paused acquisitions when spreads were unfavorable in 2023-2024 and is now waiting for better opportunities rather than forcing deals.
• Josh Zang, a key executive since 2016, is departing for a sabbatical before entrepreneurial ventures; management expressed strong support and gratitude.
• CEO Bill Lenehan highlighted the "ruthlessness on corporate overhead" and the strength of the balance sheet as key drivers for future value creation.

Analyst Questions and Answers:

• Darden Extensions: Clarified that extensions were individual lease decisions by Darden, not a mass release negotiation; this validates the profitability and stability of the underlying assets.
• Leverage Management: With leverage near the high end of the 5-6x target range, management indicated options to reduce leverage include asset sales (reverse inquiries are frequent), joint ventures (JV), or utilizing substantial free cash flow.
• Acquisition Pipeline: Cap rates are moving up but lagging debt/equity cost repricing; management is seeing selective opportunities but remains patient.
• Share Repurchase Mechanics: The $100M authorization is self-determined and can be reauthorized via email; execution is strictly price-dependent.
• State Tax Issue: The ~$100k non-recurring charge relates to a multi-year dispute in Oklahoma regarding COVID-era rules; one-time in nature.
• Wendy's Exposure: No meaningful exposure to Wendy's; management notes positive migration trends from mid-market QSR brands to stronger operators.
• Joint Ventures: Discussed as a potential mechanism to free up capital for share buybacks; demand for FCPT's high-quality portfolio is strong, but no specific JV terms or assets are finalized.

Other Key Points:

• Year-to-date 2026 acquisitions totaled $410 million at a 6.6% cash cap rate; 12-month acquisitions reached $505 million.
• $600 million in new term loans closed since April, with $410 million incremental debt at 4-5% coupons; $40 million of a $400M term loan remains undrawn and expected to be funded by year-end.
• 85% of debt is fixed-rate with only ~5% floating exposure; 800M of outstanding debt carries floating rates that can be reduced by 5-10 bps annually.
• Leasing progress for 2026 maturities: 39 of 43 leases extended, released, or amended; remaining 4 properties represent <0.2% of ABR.
• Management plans to attend the NAREIT Atlanta Conference in November and the Jefferies Conference in December.
• The company maintains a list of all properties on its website for investor transparency.