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

Hello, everyone. Thank you for joining us and welcome to Four Corners Property Trust's third quarter 2026 conference call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Patrick Wernig, CFO. Please go ahead. Thank you, Lucas. 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 abilities 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 scpt.com. All the information presented on the call is current as of today, October 29, 2026. In In addition, reconciliation to non-GAAP financial measures presented on this call, such as FFO and ANFFO, can be found on the company's supplemental report. That ultimately calls the 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've acquired a record volume of 410 million properties at a blended 6.6 cash cap rate and 7.2 gap cap rate over the past 12 months we've acquired 505 million of properties despite the record volume for fct we've remained highly consistent with the investment characteristics that have long defined fcpc strategy mainly 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 four to low five percent range utilizing our debt capacity generated 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 the FCPT spinoff 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 percent 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've continued to significantly diversify. Darden is now just 40 percent of cash rent, and 42 percent of our rents come from sectors outside of casual dining. This includes medical retail now at 16 percent, automotive service at 13 percent, and quick service at 10 percent. Now 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 23 through mid-24. Basically, we didn't buy anything. Once our cost of capital improved, we hit the gas with vigor and subsequently invested nearly a billion dollars 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 in its creative 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 lose 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 covered 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. that we are aligned with leading operators in our chosen sectors and avoid experientially sectors and over-rented properties. We try to keep it simple by acquiring low basis, fungible properties and what we believe are e-comment resistant sectors. The last point I'd like to touch on is yesterday's announcement of our inaugural share or purchase program. We're gonna go into some detail here on how we're thinking about share or purchases. One of our long-term mental models is our heat meter and 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, the two prominent ones, where shareware purchases would have made true economic sense. We believe the current landscape presents the best opportunity for FCPG shareware purposes since our company was founded. As such, our board has authorized a $100 million shareware purchase program, and if conditions meet our thresholds, then we will seek to utilize it. So let me trace the steps of how we think about this which is influenced by the writing of Michael Mobison on capital allocation. The first decision is whether there are property acquisitions that clearly exceed our cost of capital. Because we're 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 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 ourselves to. We next make sure we are conservatively levered. We want to make sure our balance sheet is in great shape. 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 purchases. FCPT has always been price disciplined in where we issue new shares and this is 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 issues and our strong confidence in the portfolio. We view FCPT's current stock price as a very compelling investment today. I'd note that it's public that I personally purchased FCP stock recently. This does not affect the theoretical exercise for me. Before handing it back over to Pat, I want to offer sincere gratitude to Josh Zang for his contributions to FCPG. Josh joined us way back into 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 FCPTE 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's been a pleasure getting to know him professionally and personally. Wherever he ends up, they'll 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 meaningful 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 bonded 6.6% cap-cap rate or 7.1% cap cap rate. This quarter was weighted towards medical retail with the previously announced acquisition of 102 Mission Pet Health properties. We also continue to source and execute our regular way investment pipelines spanning restaurants, automotive service, medical retail, and other sectors across 14 distinct transactions in Q3. Those investments included newer sub-sectors for our platform with acquisition for the G&W Grocery Property and the Drilling Tools International Light Manufacturing Facility. both cases we've been monitoring these sectors for years we've been waiting for the right opportunities with real estate credit and pricing quality fit fcpd 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 know 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 yet deal costs of around one hundred thousand dollars which is a episode we don't love killing deals but are more focused on avoiding long-term problems and deals that don't meet our return thresholds before i move on from acquisitions i'd like to commend our investment and legal teams as well as our accounting and property management team they're in an effective and efficient diligence process and integrated more properties in q3 than we have historically done in the full year really speaks to the strength of the platform and the capacity we've built at fccc now over to the balance sheet the bill highlighted since april we've closed on the total 600 million dollars new term loans this represents an incremental 410 million dollars of debt with nearly 40 percent of our balance sheet put in place or extended five to seven years four percent to flow five percent coupons 40 million dollars remains undrawn on the 400 million dollar term loan which we intend to fund by the end of the year additionally we are able to lower term loan spreads by five to ten basis points annually on 800 million dollars about standing loans for annual savings of approximately 450 000 they're fully undrawn in our 350 million dollar revolver and leverage for the q3 annualized period with six times our stated leverage range remains five to six times and on a run rate basis we remain a bit below that six times upper bound of the range on our debt maturity schedule we just had a 15 million dollar private note coming due in december which is about three percent of our total outstanding debt we plan to repay that with the private uh that that private note at the maturity date we've earmarked the funds to do so principally we expect to address the maturity of the 40 million dollars remaining on your current loan and cash on hand. Including this December note, we have just 75 million dollars or less than five percent of our total debt coming due prior to February 2028. Our staggered debt maturity schedule was specifically designed to avoid facing a significant refinancing wall in any given year. Looking at the landscape today, it's a great benefit to have very minimal refinancing headway. In the same vein, we had very little floating rate exposure with 85 percent of our debt balance fixed as of 9 30. We included a detailed hedging schedule in our supplemental that also has the locked rate on our term loan which is currently 3.1 percent now i'd like to go through a few earnings highlights for the quarter two three cash rental income was 75.2 million dollars representing 13.7 percent growth versus prior year annualized cash base rent for leases in place as a quarter end was 292.8 million dollars and our weighted average five-year annual cash rent escalator is 1.6 cash gna expense was 4.7 million dollars for the quarter representing 6.3 percent of cash rental income compared to 6.5 percent for the prior year this improvement in operating leverage illustrates our continued efforts at achieving efficient growth and the benefits of our rising scale overall q3 sfo per share was 46 cents representing 2.9 percent growth versus prior year little bit of a quarter versus our usual results because of the significant acquisition volume and debt refinancing we also recognize the one-time catch-up chart from a disputed state tax from several years ago and debt deal costs from several transactions that we killed during the quarter our fixed charge coverage ratio remains a very healthy four times as a quarter end following our q3 results we're refirming our cash gna guidance for 2026 of 19.2 to 19.7 million dollars but noting we expect to be at the bottom of the range our on the leasing front team continues to achieve remarkably strong results we continue to make progress on the 2026 lease maturity 39 of the 43 leases already extended buyer option release or amendment remaining four properties combined for less than 0.2 percent of avr we are actively negotiating with current and prospective tenants on the remaining properties in the normal course of managing our portfolio our occupancy remains strong at 99.5 percent today we collected 99.7 percent of base rent for q3 finally last quarter we did not see any material changes to our collectability or credit reserves our best class portfolio represents an opportunity for differentiated source capital in the form of dispositions in the past five periods where we were more active with dispositions but not in recent years we have a slide in our presentation posted yesterday that details our strong disposition track record we use this with another tool to unlock value not reflected in our public valuation depending on pricing and execution dispositions can be another potential capital source we regularly receive strong reverse inquiry offers for our properties in this environment we plan to be more responsive to those opportunities that will turn back over to lucas for questions we will now begin the question and answer session if you would like to ask a question please press star 1 to raise your hand to withdraw your question press star one again we ask that you pick up your handset when asking a question to allow for optimum sound quality if you are muted locally please remember to unmute your device please stand by while we compile the q a roster your first question comes from the line of jamie feldman with wells fargo jamie please go ahead all right uh thanks for taking the question so congratulations on getting the first tranche of the darden leases executed 100 um you know you would mention that those were all one-off negotiations or individual leases can you just talk about as we think about the future tranches can you talk about what kind of the negotiating points were um to get all of those done is there anything as we talk about how they might play out for the next tranches that you know were sticking points as you're negotiating or does this give you confidence that it'll go pretty smoothly for the rest yeah i think negotiation is probably too strong of a word jamie um we had to you know help administer the the paperwork on the extensions but they were essentially extended not essentially they were extended uh in you know as as actually they they notified us and uh it's just working with them so it doesn't all happen at the last minute uh just make managing the paperwork but these are very well covered leases these buildings have been in operation since i was a child by and large uh and and that's very very similar to all the rest of our portfolio i think the uh the point we made on the individual leases is that you know because it's not a mass release darden had the opportunity to go through and evaluate each property and so you know it makes us feel even better than you know you might you might think just saying that they in each and every one of those cases affirm the story for something that they wanted to remain committed to and continue to operate um because they're profitable okay thank you for that and then you know with leverage close to the high end of your range um you know assuming that the cost of capital at least the equity markets doesn't cooperate anytime soon how do you think about maybe getting that leverage lower to get yourself back in a position to acquire or do you just wait this out would you consider asset sales or anything else to to raise capital yeah i think you know patrick made the comments at the end of his remarks that we have very liquid currency in our buildings they're you know a lot of demand for them we get reverse inquiries on essentially a daily basis so we have that we have we could do a joint venture free of capital uh incremental free cash flow is substantial at the scale of business uh we have a lot of avenues to create cash to reduce leverage keep it within the range and still buy back shares but i guess in terms of like timing how how patient would you be for things to come your way before you start taking action uh if by taking action you're referring to buying back stock i think we would be uh doing that in the near term no sorry right now i mentioned third-party processes yeah i think the process of selling buildings is a pretty uh well-worn path we've shown you in our presentation we've done that a number of times so uh that can be done in the near term yeah and i think i'd just point out that you know i hope it's not lost that the timing of when we raised that debt capital this summer um was pretty fortuitous um you know around a five percent or lower coupon rate uh that's that's close to where the u.s treasury is today so you know i think we timed that well it's a create it was highly creative at that point um and you know when we think about the flexibility of having lower leverage you know you have to make sure that the pricing of that of that debt today still makes sense right and so if rates have moved significantly since then um it's to our benefit that we acted when we did and didn't hold on to that capacity okay all right great thank you your next question comes from the line of spencer glimcher with green street spencer please go ahead yeah thank you um look on the transaction front i know you guys have hit the break just given kind of the current environment your cost of capital but can you just talk about you know the makeup of deals you're seeing in terms of industries or credit looking to transact and then have you seen any capitulation from sellers in terms of, you know, just signs of, you know willingness to, to move cap rates higher. Yeah. So we actively managed our pipeline down, um, post the mission pet health acquisition. Uh, we are seeing in the market, uh, that buyers are actively retrading, uh you know in a substantial way. The few remaining assets we had in our pipeline had attractive cap rates, and what we're seeing today is cap rates going up, but not nearly as much as rates have moved and cost of debt has moved. So as Pat mentioned, we locked in a very substantial amount of debt before this move, which is very advantageous because incremental investments, if you're funding it with a typical mix of equity and debt, both your equity cost of capital is challenged across our industry as stock prices have gone down and your debt cost is challenged. So we are seeing higher cap rates. There's some selective things to do, which we're very active on, but by and large, it hasn't reacted enough to compensate where your sources of capital have repriced. Okay, thanks for that. And then on the divestment front, it sounds like obviously you're in the early innings of this process, but can you provide some color on what types of assets would be kind top of mind to sell and would this be purely opportunistic or would there be any room for portfolio management just you know keeping in mind of how high you know rent coverage and how superior tenant health is in the portfolio yeah i think it's primarily driven by how attractive the um the use of capital is in share or purchase uh so that's very price dependent as you might be aware but i think the way we think about it spencer is very similar to a report that green street did um you know many years ago i believe it was in 2014 on um the arbitrage between the nav of your company and the value of assets that you can sell so i think that you know you guys wrote the script to that game plan thank you Your next question comes from the line of Michael Goldsmith with UBS. Michael, please go ahead. Michael Goldschmidt, UBS, Good afternoon. Thanks a lot for taking my questions. Maybe we can dive a little bit deeper into just how you use what capital you do have. We're talking about share repurchases. You mentioned buying down debt. And then also, it sounds like some deals were killed. So, it seems like you were also willing to transaction the market. So can you just talk about, you know, at what levels do each of those look attractive and your thought process about approaching each of them? Thanks. Yeah. So we have seen some acquisitions that are highly strategic um where we're you know adding an asset to an already existing master lease or we're getting very attractive pricing because um you know a tenant but but by and large our focus going forward is going to be share or purchase and for obvious reasons we're not going to draw a line in the sand of what that value is but you think where our stock price is right now that's very attractive. Got it. And then also you did mention the potential of doing joint ventures. So I just want to get a sense of what that looks like. Is that selling assets into a venture with someone else and then freeing up some capital to do activity in the market or just kind of get a chance of what you would be looking to get out of a JV arrangement? Yeah, I think you nailed that. We have a very well-developed acquisition apparatus. We see a lot of deal flow, and there are parties that contact us weekly about partnering with us to buy net lease assets. On the private side, net lease is very, very popular right now, and a number of new platforms have started and perhaps have raised more capital than they have acquisition opportunities. So I think our platform is very attractive there, and it's a very efficient way, as you mentioned, to free up capital to make a creative share of purchases. Thank you very much. Good luck in the fourth quarter. Thank you. Your next question comes from the line of Wes Galladay with Baird. Wes, please go ahead. Hey, good morning, everyone. Being that you have more liquid assets and equity prices more volatile in the private market, are you okay having a tiny mismatched buying shares first and going a little above your target leverage level? I don't think – I'd rather not comment on that, Wes. okay that's all for me thanks your next question comes from the line of eric borden with bmo capital markets eric please go ahead great thanks for taking the question on the reverse inquiries that you're receiving you know where are the bids relative to your view of the asset value and then are buyers still financing and closing at those levels are you kind of seeing the same retraining pressures you described on acquisitions um i i would say that because we haven't sold assets for a couple of years now we have a number of people who are very specifically interested in an asset that might be in their local market it might be where they have a second home and we're We are reassessing those opportunities first. There's also a tax dynamic with bonus depreciation that may end on January 1st. So there's a lot of activity in the market right now for assets like gas stations and car washes that benefit from bonus depreciations. We don't have a lot of those, but we do have some. Okay, perfect. And then one for Patrick, could you quantify the state tax catch up and any other non-recurring items that affected the third quarter and then as those costs fall away and the recent acquisitions contribute to a full quarter how should we think about like the underlying earnings run rate heading into 2027 i know yeah i mean it's curious yeah so it's a very specific question very granular um if there's a need to sink on it offline on model i'm happy to do that i would just say that the state tax issue um was was unique in that the dispute started during covid um i think the state the specific state which was oklahoma i just took several years to review the uh the complaint that we had about about what it was um it wasn't a huge number call it approximately a hundred thousand dollars it's non-recurring um and the only reason we mention it frankly is because we usually don't have anything out of the norm um and so it just felt like we should highlight that was moving part of the FFO figure well yeah there were there were costs there were cost related to our credit facility that that um in some instances people might assume were capitalized that were expensed about also get the quarter so there were as we mentioned a handful of things that made it a little bit more noisy in the quarter than we would have anticipated Great. Thanks, Bill. Your next question comes from the line of Rich Hightower with Barclays. Rich, please go ahead. Hey, guys. Good morning out there. One on the share repurchases. Just help us understand the arithmetic on how you came up with the $100 million figure, you know, some combination obviously of pre-cash flow a lot of other moving parts as well that you've kind of gone through but just help us understand the build up to get to that to that figure yeah i wouldn't overthink it it's a number that uh is self-determined uh when used we can we can reauthorize it uh with a simple email to our board so i wouldn' think too much about it um at all Okay. I will not overthink it. And then, secondly, back to the joint venture topic, I know it's obviously very preliminary, but since it's kind of out there for discussion now, is this something that you envision? It could be more of a one-off source of equity, programmatic. Are you having multiple conversations along those lines? Obviously, we've seen different flavors of the same thing, sort of up and down the sector. and even broadly across REITs. So just curious for what the thought is there. I think at a high level, the demand for net lease in the private market is very strong. And I think it's, and the stock prices of the public companies are generally weak, ours included. So I think that it points that having the flexibility to invest both public and private capital, at least at this moment in time, is a valuable thing. And I think it's a good way to free up capital to buy back some. Okay, thanks, Bill. Yeah. Your next question comes from the line of Mitch Germain with Citizens Bank. Mitch, please go ahead. Sorry about that. Lots of noise around Wendy's. there any exposure in your portfolio with that tenant uh not meaningful you know we have a handful of them um you know i think uh it's not as well said it's it's on a meaningful framework and and i would also say that we've seen and i and i wouldn't by no means expect uh uh when these to be problematic but that we have seen some very positive results uh with qsr brands migrating from you know midland brands to to very strong brands because the replacement costs and the drive-through entitlements are super valuable i'd point out that you know to the extent it's useful to you mitch we do have on our website a list of all the properties that we own in the portfolio published um so that's a reminder to our investors that that's the resource and transparency that we're trying to provide them super helpful um i think last question bill you were pretty bullish on um And I'm not asking for guidance, I want to say that, but you were pretty bullish on growth prospects last quarter, almost frustrating. And you almost get the full quarter benefit of that bigger mission transaction this quarter. And I recognize there's just a lot of noise in your numbers here throughout the quarter. But, you know, how should we think about, you know, kind of the growth prospects of kind of what you've just accomplished over the course of the year and what it could mean for you guys going forward? Yeah, I mean, I really am looking out not quarter to quarter or, you think it's pretty intra-quarter. I'm looking out for 27, 28. And I really believe that what we did with our balance sheet, what we did on Mission Pet Health, that our sort of ruthlessness on corporate overhead puts us in a really good position for 27 and 28. And if the stock price remains low, our ability to create value by buying back stock makes that even more so. Thank you. your next question comes from the line of Jamie Feldman with Wells Fargo Jamie please go ahead oh great thanks for taking the follow-up so you had mentioned potentially JV as a source of capital I'm just curious if you could provide more color given we're seeing more and more of that across Streetland you know how do you think about a potential size uh how do you think About the types of assets or types of tenants you'd want to put into those assets and with some of the the darden extensions would that make sense for a jv but any other color you could provide on what that might look like would be great um yeah i'm not going to negotiate the terms of our of the jv on our conference call i would just say that what i said before which is there's lots of demand for our high quality portfolio and there's a lot of value in our platform and there are a lot capital uh swishing around in private markets and we're attuned to that but you know the markets out there is pretty volatile and we're certainly not uh at the stage um at an advanced stage in those discussions we will announce it when its finalists when and if it's finalists okay so it sounds like it's not a high priority it's just an option i i wouldn't say that next question operator we have reached the end of the q a session i will now turn the call back to bill lenehan for closing remarks thank you lucas the first nine months of 2026 have been unprecedented for fcpt we've exceeded our record annual investment volume by completing the largest acquisition in our history and accelerated the diversification of our portfolio we also executed the first renewal trunks of the expiring Olive Garden and Longhorn properties at a 100% renewal rate, demonstrating the durability and strength of the portfolio. And we extended nearly 40% of our balance sheet at an approximately 5% or lower coupon. Finally, we've activated our inaugural fair repurchase program. Our portfolio is performing incredibly well with occupancy, rent collections, tenant coverage, and leasing outcomes amongst the strongest in net lease. Our consistency has set us up with the tools we can help create value in any environment our team will be at the nary atlanta conference in november and the jeffries conference in december we welcome the opportunity to meet in person please reach out to either patrick or myself to coordinate schedules thank you you this concludes today's call thank you for attending you may now disconnect