Q2 2025 Four Corners Property Trust Inc Earnings Call
Hello everyone, and thank you for your patience. On today's call, we will discuss FCPT's second quarter 2025 financial results. During today's call, there will be some prepared remarks followed by a Q&A session. If you would like to register for a question, please press star followed by 1 on your telephone keypad. To withdraw your question, press star followed by 2. We will start the call in approximately 1 minute.
Hello everyone, and thank you for joining us on. Today's fcpt second quarter 2025 Financial results.
My name is Drew and I'll be the operator on today's call.
During the call, we will have some prepared remarks, followed by a Q&A session. If you would like to register a question today, please press star followed by 1 on your telephone keypad and to withdraw your question, its star followed by 2.
It's now my pleasure to hand over to Patrick Wernig to begin. Please go ahead with your update.
Thank you.
During the course of this call, we will make forward-looking statements, which are based on our beliefs and opinions. 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 some potential risks, please refer to our SEC filings, which can be found at fct.com.
All the information presented on this call is current as of today, July 30th 2025 in addition, reconciliation and non-gaap financial measures presented on this call such as FFL and afo can be found in the company's supplemental report that will turn the call over to Bill.
Good morning. After my remarks, Josh will comment on the investment market and Patrick will discuss Financial results and capital position.
The first half of 2025 continued the momentum we had in the second half of 2024. We acquired additional properties that fit our high quality standards while keeping our pricing consistent.
We were able to fund these deals with our strong cost of capital Equity, we raised on the ATM via forward issuance over the last year.
$84 million in acquisitions in Q2 at a 6.7% blended cap rate. Over the last 12 months, we've acquired $344 million of properties, which is among our highest volumes across four consecutive quarters.
We have momentum and we are reaching these milestones in a uniquely FCP, TT way. First, we focused on real estate and creditworthy tenants, never sacrificing quality for volume or spread. Second, we remain committed to modulating acquisitions when our cost of capital weakens and then return with vigor when we re-enter the green zone.
Our ability to fluctuate, acquisitions to protect spread without weakening. Our portfolio quality is, in our view, a strong competitive advantage for FCPT.
Within the net lease industry.
Olive Garden. Longhorn chilies are industry leaders and generally outperformed the national peers, as well as fine dining or local brands. Most recently Brinker reported chili, same store, sales grew 32% for the quarter ended. March 2025 Olive Garden and Longhorn reported same store, sales growth of near 7% for the quarter. Ended May 2025
While casual dining comprises 66% of our rents, we also want to highlight the progress we've made on diversification. We've grown from 4,008 properties of 5 brands in 2015, at the spin, to 1,260 leases across 165 brands, 10 years later.
Olive Garden and LongHorn now account for 33% and 9% of our rent today, respectively, versus a combined 94% prior to the spinoff.
34% of our portfolio rent is now outside of casual dining, including quick service at 11:00, automotive service at 12:00, and medical retail at 9:00.
All of our chosen, sectors are focused on the central retail and services. Creating what we view as a very defensive portfolio and quite tariff resistant,
We are still waiting for the tariff impact to completely settle. We expect restaurants in the service industry to be less impacted, due to their largely domestic supply chains.
We would expect to pull back in consumer spending from any recession or high inflation environment. But we feel that we are well, positioned with low rents to provide significant cushion.
Our portfolio remains in fantastic shape with no exposure to the problematic retailers or sectors that have been recently struggling, such as theaters, pharmacies, car washes, and experiential retail.
We aim for best-in-class disclosure, in addition to our press release for every acquisition. We also disclosed our top 35 brands in the supplemental, which represents 83% of our rents. The net lease industry peer group typically discloses 20% to 50% of rents.
but we have not provided information on bad debt expense, historically,
Because there hasn't been much to report going back to 2016. We've had a total of 1.76 million in bad debt, excluding recoveries from releasing versus 1.5 billion.
Of rent, collected over the same period.
I'll repeat those figures: $1.76 million of bad debt versus $1.5 billion in rent collected.
That's an average of 12 basis points or 176,000 per year, including zero for in 2025,
To put this in context, most of our peers have stated a track record or expectations of 25 to 75 basis points annually.
I'd also like to note that in these bureaucratic events, the recovery rates for new leases have been very high, with an average above 90% of prior rent, and are often above 100% of prior rents when we replace the tenants.
Over to you, Josh.
Thanks Bill.
During Q2, we acquired 24 properties for $84 million at a blended 6.7% cap rate, with a weighted average lease term of 13 years.
For the first half of the year, we have acquired 47 properties for $141 million at a blended 6.7% cap rate.
Next sharing some statistics with a quarter.
first, 68% of our total volume was in the automotive sector, including established tenants such as Caliber Collision, Christian Brothers and express oil brand owned by Mavis and Tires, Plus the subsidiary of Bridgestone
Second, one-third of our investment volume was from sales with East banks, with credit worth of The Operators. Looking to grow of note, we completed one with Christian Brothers Automotive and another with Vive Collision.
The Christian Brothers opportunity was a repeat relationship from Q4 for the team. They now operate over 310 locations across the country and notably have never closed a store due to poor business in their 43-year operating history.
Live in the Northeast-based collision repair. Operator is a new tenant for us that we've been following their progress for several years. We acquired two locations via sale East back and are excited to continue assisting their growth.
Overall this quarter highlighted have Automotive Service remains 1 of our core targeted Industries.
Specifically, the sector is both e-commerce and recession-resistant, while benefiting from tailwinds, especially as the average age of passenger vehicles in the U.S. is now at a record 14 years.
As demand for vehicles and service continues to increase, we expect the operators of scale will continue to consolidate the market.
Further automotive service properties require special zoning and use permitting. That is not always easily attainable from their respective municipalities.
This creates a stickier tenant base that regularly renews versus relocating.
Moving on to dispositions, while we did not have any this quarter, our team continues to feel free to reverse inquiries and offers on our properties.
Restaurant on that race cap rates. However, we are continuing to find attractive opportunities that are both consistent with our quality thresholds and within pricing standards, similar to what we have seen earlier in the year.
Lastly, and as a reminder, we do not provide acquisitions guidance. We will remain disciplined in our pricing as we continue to see the ideas that meet our dual quality and returns rationales. Patrick, back to you. Thanks, Josh.
I'll start by talking about Capital sourcing in the state of our balance sheet in Q2, we raised 24 million dollars in that Equity, that is an addition to the 149 million that we raised in q1.
Over the last 12 months, we've raised nearly half a billion dollars of equity, which has allowed us significant capacity to match on our acquisitions. As of yesterday, we have $146 million of unsettled equity at a price of $2. We are becoming increasingly comfortable maintaining your forward equity balance. These higher silver rates largely offset the carrying costs.
With respect to overall leverage, our net debt to adjusted EBITDA is 4.5 times, inclusive of outstanding net equity forwards, as of June 30.
Excluding our forward equity balance, our leverage is at 5.4 times. This is our fourth consecutive quarter of leverage below our stated guidance of 5.5 to 6 times and remains near a 7-year low.
What's up? Full capacity under our $350 million resolver and the liquidity to continue executing our business plan this year without further access to capital markets.
We layered in 2 additional Hedges after June 30th which is further lowered, our floating rate interest exposure. We now have 95% of our term debt fixed through November 2027 at 3% versus spot rates today near 4.35
Including our fixed-rate private notes, we are 97% hatched.
Including extension options, we have near-zero debt maturities for nearly two years, and our staggered maturity schedule will ensure we do not face a significant loss at any point thereafter.
Additionally, our fixed charge coverage ratio is a healthy 4.5 times.
Altogether. This puts us in a great liquidity position with approximately 500 million dollars of available capital for funding Acquisitions. As of today, pursuing, no further Equity issuance. We have an approximate 470 million of capacity before reaching 6 times. That Leverage
Now, turning to some of the financial highlights for Q2.
We reported a code for a share of $0.44, which is up 2.8% from Q2 last year.
Rental income from gas rentals was $64.5 million, representing growth of over 11% for the quarter compared to last year.
And our cash based on the leases in place as of Q2 is $249.8 million. Our weighted average 5-year annual cash run escalator remains at 1.4%.
Cash DNA expense, excluding stock-based compensation, is $4.4 million, representing 6.9% of cash rental income for the quarter, compared to 7.4% for the same quarter last year.
This improving operating leverage illustrates our continued efforts at efficient Grill and we'll end the benefits of our improving scale. We are still expecting cash and a will be in the range of 18 to 18 and 1.5 million dollars for 2025.
As for managing our lease maturity profile, we have 41 leases expiring in 2025. Our team has made significant progress, with more than 85% of those tenants already extending their lease or indicating intent to do so.
2025 remaining expirations now represent just 0.4% of APR, and we are beginning work on next year's expirations.
For reference, we had 44 leases expire last year, with 40 at Reneau. Two of those non-renewals are already released, and the other two are in inactive negotiations.
There were no material changes to our collectibility or credit reserves, nor any balance sheet impairments.
Our portfolio occupancy today remains strong at 99.4%, and we collected 99.48% of base rent for 2022.
With that, I'll turn it back over to Drew for questions.
Thank you. We'll now begin today's Q&A session. If you would like to register a question, please press star, followed by 1 on your telephone keypad. To withdraw your question, press star followed by 2.
Or now, take our first question from John Kowski from Wells Fargo. Your line is now open. Please go ahead.
Uh good morning, thank you. Uh, bill on previous calls, you, you know, you've made mention about building out your acquisition team. I'm curious when you look at the volume that you've done, is that a product of, you know, we've 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's available that you're you're winning.
Business is working. Um, 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, um,
You know, assessing 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. Um, has not been terribly attractive, but not terribly attractive.
Understood, and I guess if I were doing a sensitivity analysis and and cap rates were to move, let's say, 10 or 20 bits in your direction and you kept your cost of capital, uh, where it is. How much do you think that that would move the opportunities that for you if you're doing a couple hundred million dollars of of investments in a quarter? You know where do you think that that could move that needle too. I'm just I'm just trying to sort of sensitize this.
Yeah, I'd first. Look at the the forward that we have, which is already priced at north of 28 dollars uh where we raise that Capital. Um and so
You know, to take your question, maybe 25 basis points.
What would be substantial would be, you know, $100 million or $200 million.
Got it. Thank you.
Our next question, today comes from Michael Goldsmith from UBS your lines now open, please go ahead.
Good morning. Thank you for taking my question. 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've kind of reached a comfortable level of Garden exposure that you're interested in maintaining going forward?
Um, you know, we've consistently Diversified the garden exposure down but we haven't hesitated to buy garden related assets. Um, when we found ones that we really liked, and the pricing was was great, um, and and that, you know, played out in this, this quarter very often, the ones that were buying are out Parcels where the rents are really low.
The garden is doing, you know, fantastic. It has an equity market cap over $25 billion, and its credit to full 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.
Got it, and thanks for that bill. And then as a follow-up, you've been an active acquirer in the first half of the year, uh, 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?
It really comes down to cost of capital and what, what the markets, um, you know, brings us, but we've certainly quite busy. Um, your your observation that Q4 tends to be our largest quarter, I think that has been true over over most of our tenure, um, but we're too soon to see what would close in Q4. Those would be assets, that would typically be uh, source and underwritten in the August September.
October timeframe, so a little too soon to tell. I'll have more detail on that in the next call.
Thanks again. Good luck in the back half.
Thank you.
Our next question comes from the line of Anthony Pallone from JP Morgan. Your line is now open. Please proceed.
Yeah, thank you. Um, 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.
Uh, just where the deal flow happened to be, precisely.
Okay, and then, um, going back to the earlier question in the math around, you know, maybe picking up 25 basis points. Like if we kind of just do the math on our side, it seems like where you've raised capital and where your yields have been, it's, I don't know, 50 to 75 basis points of blended spread. So, you know, should we look at that as if you were to do something a little bit closer to a 7, given that you've walked a lot of your financing costs right now or your equity costs? Like, that would kind of open up the deal volume, or just trying to think about how, you know, how that would work.
The creative 1, we acquire things and that we um, feel like we're paying a fair price for the real estate. And and I think if you look at our history, we haven't, um, on 1 hand when rates were very low, we weren't buying things in the mid fives and when our peers had impaired stock prices, they were acquiring things at Mid tie sevens. But they were dipping down in quality. And the point that we're trying to make is we try to stay very consistent on.
Quality and price. And when the stock market gives us the opportunity to raise equity at a favorable pricing, uh, we're not bashful.
Okay, understood. Thanks, B.
Our next question today comes from Kyle. Katherine AEK from Johnny, your line is now open. Please go ahead.
Hey, good morning, guys. Chars remaining to be settled under forward. You're now around 150 million dad 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, where is the more function where your stock price is currently?
Probably more the latter.
All right. Thank you.
Our next question comes from Alec Vegan from B. Your lines are now open. Please proceed.
Yeah, thanks for taking our questions.
Uh, first one for me is: is deal flow picking up, and has the competitive landscape been changing at all?
The um the deal flow has been quite consistent and you know we're always looking at everything from very substantial portfolios down to million dollar buildings but I would say it's been pretty consistent. Um,
The pricings been acceptable for what we're buying. Um,
But certainly, the pricing isn't, um, you know, super attractive. So we're trying to pick our spots.
and as mentioned we have Capital that was raised at a good prices on our ATM that provides uh some Runway
All right, and then between the credit and real estate criteria, what has been the stronger filter in not getting deals done so far in 2025?
I don't really think there's been much change in scoring. Um, it's really more to do with pricing.
Like we’re certainly finding a sufficient volume of things that meet our quality criteria. Um, it’s just the way you put that next filter on making sure the pricing is created for our shareholders. Um, that becomes a governor on how much you can do.
All right, that's it for me. Thank you. I I would also point out that we're, you know, we are operating the business, um, at at record levels of acquisition.
Uh spite not having large portfolios in that mix uh which is how and prior years, we had elevated acquisition volume.
Got it.
Our next question, today comes from Mitch. Germaine from Citizens Capital, your line is now open. Please go ahead.
Uh, thanks. Um, Bill looks like 2027. You start to get the, um, Darden spin assets beginning to roll. Um, obviously you’re already working on the 2026 role now. So, is there an anticipation of maybe starting to pull some of that forward here?
Extension options.
Are at Gardens. Um,
Uh option. And they have they have a notification of a year uh, to to a lot to tell us what their intentions are, you know, we're in constant dialogue with them. It's a fantastic relationship. Um, you know, we'll see how that works as As Time plays out kind of, you know, frankly, they are very, very highly covered. Um, so it's a, a bit of a, a different situation than in most net lease. These are properties that are highly productive with rents that are very reasonable.
Great, that's super helpful. And then you may have even asked this in the past, I apologize. Um,
If it were you, but Bahama Breeze, obviously facing.
Some store closures. Um,
Anything of note? I think you have 10.
Uh, properties exposed to that, uh, tenant. Is there any sort of proactive, anything, proactive that you guys are doing on your end there?
We had one property that was closed; only one property on the closure list.
At SARS Mills.
Uh, which is a mall. I know really well, it was part of an acquisition that I did when I was at Ferlon with, um, the 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. Um, it's again, you know,
On a ring road of one of the best malls in the country, um, other than that we had pruned our Bahama Breeze exposure, right after span. What we're left with are, you know, very strong properties with.
Very reasonable rents. I don't think there's any.
there's any there's not any concern. In fact, there may be some opportunity there.
Great, thank you so much.
Thanks.
As a final reminder, if you would like to ask a question today, it's star followed by 1 on your telephone keypad. To withdraw your question, press star followed by 2.
Our next question comes from Jason Wayne from Bartley's. Your line is now open. Please go ahead.
I saw your recent acquisition announcement of the veterinarian retail property. Um, it's a pretty small deal, but the cap rate was above recent levels. Um, could you just walk through your outlook for that industry and what makes you more comfortable with more deals there?
Yeah. Um,
You know, that falls underneath our medical retail, um,
Efforts, uh, it's that the industry is changing. It's probably a longer subject than for this call. But, uh, you know, we think it's an interesting, um, space. We're a little bit wary of private equity in that industry, but overall, uh, reasonable basis, decent returns. Um, and, uh, something you should expect to see us do more of going forward.
Got it, thanks.
Thank you, we have no further questions in the queue at this time. So that that's good. The Q&A portion of today's call, I'll hand back over to Bill Lanahan. For some closing comments.
Great. Thank you drew just some final thoughts. Um, the portfolio remains resilient small and funable buildings leads to large National operators which are resilient and uncertain times. We evidence a strong track record with an ultra low bad debt expense and strong releasing results.
We have a 10-year track record of being extra sensitive to our cost of capital by modulating capital, raising and investing when necessary. We invest when it's incredibly beneficial for our shareholders.
We believe the FCPT is in a strong position to continue to execute our strategy, no matter the near-term market conditions, having over $144 million in unsettled forwards, full revolver capacity, and no near-term debt maturities. Thank you for your time, everyone.
That concludes today's call. You may now disconnect your line.