Four Corners Property Trust Q1 2025 Earnings Report

Four Corners Property Trust EPS Results

• Actual EPS: $0.44
• Consensus EPS: $0.42
• Beat/Miss: Beat by +$0.02
• One Year Ago EPS: $0.43

Four Corners Property Trust Revenue Results

• Actual Revenue: $71.48 million
• Expected Revenue: $67.17 million
• Beat/Miss: Beat by +$4.31 million
• YoY Revenue Growth: +7.50%

Four Corners Property Trust Announcement Details

• Quarter: Q1 2025
• Date: 4/30/2025
• Time: After Market Closes
• Conference Call Date: Thursday, May 1, 2025
• Conference Call Time: 12:00PM ET

Four Corners Property Trust (NYSE:FCPT) engages in the owning, acquisition, and leasing of properties for use in the restaurant and food-service related industries. It operates through the Real Estate Operations and Restaurant Operations segments. The Real Estate Operations segment consists of rental revenues generated by leasing restaurant properties. The Restaurant Operations segment includes the Kerrow Restaurant operating business. The company was founded on July 2, 2015 and is headquartered in Mill Valley, CA.

Four Corners Property Trust Q1 2025 Earnings Call Transcript

Key Takeaways

• FCPT delivered a record Q1 acquisition volume of $70 million at a 6.7% cap rate (bringing total to $269 million since August), while raising $475 million of equity via its ATM program and reducing leverage to a seven-year low to preserve liquidity.
• Portfolio fundamentals remain strong with 99.4% occupancy, 99.5% rent collection and an average rent coverage of 4.9x among high-quality tenants such as Olive Garden, LongHorn and Chili’s, and Darden exposure down to 47% of ABR.
• Financial results for Q1 included AFFO of $0.44 per share (+2.3% YoY), cash rental income of $63.2 million (+9.1% YoY), a run-rate rent of $243.9 million and G&A efficiency at 7.7% of revenue (guiding $18–$18.5 million for FY 2025).
• Balance sheet strength is highlighted by a net debt/EBITDAre ratio of 4.4x, over 95% fixed-rate debt through 2027, a fully available $350 million revolver, no material debt maturities before 2027 and $617 million of acquisition capacity before reaching 6x leverage.
• FCPT emphasizes its role as a “calm port in the storm,” with zero exposure to high-risk net lease sectors, transparent disclosure of top 35 brands (>80% of ABR) and a disciplined focus on resilient, low-tariff tenants.

Presentation

[Operator]

Hello, and welcome, everyone, to the FCPT First Quarter twenty twenty five Financial Results Conference Call. My name is Becky, and I'll be your operator today.

[Operator]

During the presentation, you can register a question by pressing star followed by one on your keypad. If you change your mind, please press star followed by 2. I will now hand over to your host, Patrick Wernig, Chief Financial Officer, to begin. Please go ahead.

[Patrick Wernig, CFO at Four Corners Property Trust]

Thank you, Becky. 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 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 fcpt.com.

[Patrick Wernig, CFO at Four Corners Property Trust]

All the information presented on this call is current as today, 05/01/2025. In addition, reconciliation to non GAAP financial measures presented on this call, such as FFO and AFFO, can be found in the company's supplemental report. With that, I will turn the call over to Bill.

[William Lenehan, President & CEO at Four Corners Property Trust]

Good morning. Following our typical cadence, after my introductory remarks, Josh will comment further on the investment market and Patrick will discuss our financial results and capital position. The start of 2025 continued the momentum we had in the second half of twenty twenty four. We took advantage of our sustained strong cost of capital and added to the pipeline, finding deals that both met our quality standards and with pricing that made sense. This led to Q1 being the highest acquisition volume for our first quarter in the company's history, which similarly followed our highest Q4 volume.

[William Lenehan, President & CEO at Four Corners Property Trust]

So far this year, we've closed $70,000,000 of acquisitions at a blended 6.7% cap rate. Looking back to when we fully turned the acquisition machine back on in late August, we have closed $269,000,000 of acquisitions over the past eight months. While we do not give acquisition guidance, we are continuing to add toward the pipeline and are seeing opportunities that are consistent with our quality thresholds and within our pricing standards. We note that we have not seen much change in cap rates for recently priced deals. We've continued to build significant liquidity while delevering to preserve optionality on funding new opportunities as they arise.

[William Lenehan, President & CEO at Four Corners Property Trust]

This includes leaning in on the equity sales via our ATM program, which we have used to raise $475,000,000 in equity since July of last year. Including our unsettled equity forwards, we now have our lowest leverage levels in the last seven years. Simply put, we are well positioned for uncertainty. Shifting to our in place portfolio, we continue to perform well with high rent collections and occupancy. Our rent coverage in the first quarter was 4.9 times for the majority of our portfolio that reports this figure.

[William Lenehan, President & CEO at Four Corners Property Trust]

This remains amongst the strongest coverage within our industry. FCPT's largest tenants are nationally branded restaurant operators, namely Olive Garden, LongHorn and Chili's. They are leaders for their sectors and generally outperform the industry peers as well as fine dining or local mom and pop brands. Most recently, Brinker reported Chili's same store sales grew 31.6% for the quarter ended March 25. Similarly, Olive Garden and Longhorn reported same sales growth of just shy of 12.6% year over year for the three months ended February 2025, respectively.

[William Lenehan, President & CEO at Four Corners Property Trust]

While these brands remain core to our portfolio and strategy, as we approach ten years as a public company, we would also highlight our diversification progress over that period. We've grown from four eighteen properties at inception to twelve thirty six leases today. Darden has dropped from 100% of our rent roll to now 47% combined across all of their brands. This improvement is despite acquiring 47 Darden properties post spin. Our top five brands make up 55% of our annual base revenue.

[William Lenehan, President & CEO at Four Corners Property Trust]

On sector diversification, 67 of our annual base rent comes from casual dining and 11% from quick service. Outside of restaurants, automotive service is our largest sector at 11% of ABR, followed by medical retail at 9% of ABR. As for portfolio management, we are not yet experiencing any material tenancy issues in the portfolio and no current indicators that inflation or tariff issues will impact our rent payments. Further, while the current tariff environment remains uncertain, we expect restaurants to be one of the least tariff affected sectors. Similarly, our other service based tenants should fare better than average retail operators given their low exposure to imported goods as part of their operations.

[William Lenehan, President & CEO at Four Corners Property Trust]

While we would expect in a recession that we would see some pullback in our tenant performance, we believe that we are well positioned with cushion on our rent coverage to weather any potential issues. Turning to the materials we published last night, we would like to highlight a few new slides in our investor presentation that point to what we believe is FCPT being a calm port in the storm. Our portfolio was built brick by brick to be resilient, and we've paired that with a prudent capital management. We have significant liquidity, no near term debt maturities, granular low basis properties, high rent collections and low overhead. FCPT's portfolio is made up of well capitalized sophisticated operators who we believe will be able to navigate and gain share in this challenging macro environment.

[William Lenehan, President & CEO at Four Corners Property Trust]

We pride ourselves on transparency and best in class disclosure. So in addition to our press release regime on new acquisitions, this quarter we decided to further break out our portfolio to the top 35 brands, which make up more than 80% of our ABR. Our goal is for our investors to understand our tenant exposures and have confidence that we'll stay disciplined on meeting quality expectations for the properties we buy. To that end, you will see in our filings, we have zero or near zero exposure to the problem net lease sectors such as theaters, pharmacy, high rent car washes and big box retail. Over to you, Josh.

[Joshua Zhang, Managing Director of Investments, Head of the Investment Team at Four Corners Property Trust]

Thank you, Bill. During the first quarter, we acquired 23 properties for $57,000,000 at a blended 6.7% cap rate with a weighted average lease term of seventeen years. We did not sell any properties in the quarter. While Q1 is typically our slowest quarter, we continue to deliver on the strong investment momentum we achieved in the second half of twenty twenty four. As a result, we believe that we stand very well positioned at the end of the first four months in 2025, having both come off a record Q1 to start the year right after a record Q4 last year as we continue to build out the pipeline.

[Joshua Zhang, Managing Director of Investments, Head of the Investment Team at Four Corners Property Trust]

We are achieving this without compromising on the quality of our asset selection or the credit standards to meet yield or volume targets. Our disclosure regime is particularly helpful in times like these where investors can read through our frequent press releases to see how our acquisitions and the brands we work with are highly consistent with past years. Our team is being patient and organized, tracking our opportunity sets for both on and off market investments and including robust analytics to help us identify the best opportunities. In other words, we are not chasing deals, but rather selecting the best ones that fit our portfolio even if that means leaning in slightly on cap rate to capture these higher quality deals, all while still protecting accretion. Reflecting back on Q1, '80 '3 percent of our investment volume was via COE spec as operators continue to seek stable financing solutions in this current market.

[Joshua Zhang, Managing Director of Investments, Head of the Investment Team at Four Corners Property Trust]

As such, our weighted average lease term this year was much higher at seventeen years. In particular, we had three sale leasebacks of note with QSR operators, One with Burger King corporate, another with a large multiunit Burger King franchisee, and lastly with the Whataburger franchisee. The two Burger King deals were both part of M and A transactions while the Whataburger deal was for the newly built stores. It's worth noting that similar QSR properties typically command very aggressive cap rates in the upper 5% to low 6% cap rate range when sold piecemeal. Individual investors favor these small price points per property and the fungibility of their real estate.

[Joshua Zhang, Managing Director of Investments, Head of the Investment Team at Four Corners Property Trust]

However, our team was able to achieve accretive pricing here by offering a portfolio solution and efficient execution for our operating partners. All three transactions were negotiated off market and a product of years of relationship cultivation from our investment team. Looking forward, we will continue to target similar opportunities, nationally recognized brands operated by best in class operators with appropriate basis. While this quarter ended up having more quick service restaurants, some automotive and no medical retail investments, we remind everyone that our team does not specifically allocate target buckets or quotas across our investment sectors. Rather, we make investments when opportunities meet our underwriting criteria.

[Joshua Zhang, Managing Director of Investments, Head of the Investment Team at Four Corners Property Trust]

That being said, we still expect these sectors to be roughly even split between these three target categories of ours over the long term. Looking forward, FCPT's opportunity set continues to grow despite a volatile macro environment. We have a steady pipeline built out for Q2 and aim to continue to execute on our strategy with discipline. Patrick, back over to you.

[Patrick Wernig, CFO at Four Corners Property Trust]

Thanks, Josh. I'll start by talking about capital sourcing and the state of our balance sheet. At STPT, we are highly focused on efficient capital raising. We raised over $169,000,000 in 2025 to date on top of the 318,000,000 equity in 2024. Today, have $254,000,000 of unsettled equity forwards.

[Patrick Wernig, CFO at Four Corners Property Trust]

The ability to raise forward ATM quickly and at scale has allowed us to match sources and uses more effectively. Furthermore, the high SOFR rate has allowed for a minimum drag of our forward balance given we receive interest income on the balance at over 4%. With respect to overall leverage, our net debt to adjusted EBITDAre in Q1 continued to move lower to 4.4 times inclusive of outstanding net equity forwards as of March 31. This leverage is at a seven year low and provides capacity for us to continue to execute our business plan even if the current volatility persists or we are unable to raise additional capital for the rest of the year. We've also layered in additional hedges to our floating rate exposure, raising us to over 95% fixed through Q3 twenty twenty seven.

[Patrick Wernig, CFO at Four Corners Property Trust]

Our revolver is fully available at $350,000,000, and we have, with extension options, essentially no debt maturities for nearly two years. Additionally, our fixed charge coverage ratio is a healthy 4.4 times. Altogether, this puts us in a great liquidity position. We have approximately $617,000,000 available for funding acquisitions between cash, unsettled forward equity, and undrawn revolver capacity. Assuming no further equity issuance, have an approximate $565,000,000 of available capital before reaching six times net leverage.

[Patrick Wernig, CFO at Four Corners Property Trust]

Now turning to some of our financial highlights for q one. We reported q one AFFO of 44¢ per share, which is up 2.3% from q one last year. Q1 cash rental income was $63,200,000 representing growth of 9.1% for the quarter compared to last year. On a run rate basis, current annual cash based rent for leases in place as of quarter end is $243,900,000 and our weighted average five year annual cash rent escalator remains 1.4%. Cash G and A expense, excluding stock based compensation, was $4,900,000 representing 7.7% of cash rental income for the quarter compared to 7.9 for the quarter last year.

[Patrick Wernig, CFO at Four Corners Property Trust]

This progress illustrates our continued efforts at efficient growth and the benefits of improving scale. We're still expecting cash G and A will be in the range of $18,000,000 to $18,500,000 for 2025. As a reminder, we take a conservative approach and do not capitalize any of compensation costs related to our investment team. As for managing our lease maturity profile, our team has made significant progress on 2025 maturities with 88% of those tenants already extending their leases or indicating an intent to do so. As of quarter end, expirations represent just point 5% of ABR, and 2026 is 2.3%.

[Patrick Wernig, CFO at Four Corners Property Trust]

Our portfolio occupancy today is 99.4%, and we collected 99.5% of base rent for the first quarter. There were no material changes to our collectability or credit reserves nor any balance sheet impairments. With that, we'll turn it back over to Becky for questions.

[Operator]

Thank

[John Kilichowski, Vice President - Equity Research Analyst at Wells Fargo]

Just on a little bit of slight yield compression in the quarter. Is that due to the fact that there's maybe more competition in your sectors for these assets given the insulation from tariffs?

[William Lenehan, President & CEO at Four Corners Property Trust]

Hard to say. I would say the vast majority is related to the high percentage of QSR restaurant acquisitions in the quarter.

[John Kilichowski, Vice President - Equity Research Analyst at Wells Fargo]

Okay. And then maybe just on the the pipeline more generally, you know, you have a a big fourth quarter followed up with a a very strong first quarter. You know, what's your governor on growth? And and maybe just some color around what your pipeline looks like. I'm curious, Patrick, you talked about smart capital raising.

[John Kilichowski, Vice President - Equity Research Analyst at Wells Fargo]

I'm curious if that's it or if it's just the amount of deals or if it's the size of your, you know, your team. I'm curious what keeps you from maybe taking up a a step further from here.

[William Lenehan, President & CEO at Four Corners Property Trust]

Sure. And and, John, maybe just to more completely answer your first question, I think if we were targeting sectors that were very exposed to tariffs, we would have a much higher cap rate, obviously. But as the great research you published recently,

[William Lenehan, President & CEO at Four Corners Property Trust]

we

[William Lenehan, President & CEO at Four Corners Property Trust]

have very low tariff exposure in our portfolio. As far as governors to growth, that's a much longer answer. But I think the kind of acquisitions that we're working on is what largely determines how much we buy in a quarter. So whether it's sale leasebacks, which were prominent in this quarter and in Q4, are much more efficient. Individual one off deals, it becomes challenging to have that many balls in the air on $2,000,000 acquisitions, dollars 3,000,000 acquisitions to put up larger volumes.

[William Lenehan, President & CEO at Four Corners Property Trust]

But we really don't look at it that way. We're trying to score assets and buy assets that have sufficient quality, and then making sure that we raise the money the right way. And I think we feel particularly proud over the last couple of years that when the environment was sufficient for acquisitions but our cost of capital wasn't there, we responsibly paused. But then when there was alignment where there was acquisitions to do and our cost of capital was there, we acted with emphasis.

[Joshua Zhang, Managing Director of Investments, Head of the Investment Team at Four Corners Property Trust]

All right. Thank you.

[Operator]

Our next question comes from Michael Goldsmith from UBS.

[Kathryn Graves, Equity Research Scientific Associate at UBS Group]

This is Catherine Graves on for Michael. Thank you for taking my question. So my first just looking at the volume that you achieved in 1Q. So last year, the acquisition sort of ramped up through the year. Can you provide any color on what you're expecting as far as the cadence for this year, especially starting at such a higher base?

[William Lenehan, President & CEO at Four Corners Property Trust]

Yes. Q4 has historically been a very strong quarter for us. And I'm not sure why, Catherine, to be honest with you. There's a dynamic where people wanna get things done in a fiscal year perhaps. But, you know, we have a very good pipeline right now.

[William Lenehan, President & CEO at Four Corners Property Trust]

Deals typically have sixty to ninety day sort of life cycles. Sixty would be a minimum. So we really don't have a lot of visibility on the second half of the year. And certainly, with all the macro uncertainty, it's it's very hard to tell. But we are staffed and capitalized and very focused and organized in executing the rest of the year.

[William Lenehan, President & CEO at Four Corners Property Trust]

But we don't give guidance, because, really, we wanna make sure that we have, the best sort of decision making hygiene and making acquisitions.

[Kathryn Graves, Equity Research Scientific Associate at UBS Group]

Fair enough. Thank you. And then my second question, you acquired several Burger Kings in this past quarter, and and I'm sure you saw there was recently a a large franchisee who filed for bankruptcy. Is your sense that this was sort of a franchisee specific issue, or has anything changed as far as how you monitor the health of of your Burger King tenants?

[William Lenehan, President & CEO at Four Corners Property Trust]

Very much a a specific issue to that franchisee.

[Kathryn Graves, Equity Research Scientific Associate at UBS Group]

Got it. Thank you.

[Operator]

Thank you. Our next question comes from Anthony Paolone from JPMorgan. Your line is now open. Please go ahead.

[Anthony Paolone, Executive Director at J.P. Morgan]

Yes. Thank you. I know this may not be completely apples to apples because I understand the skew towards QSRs with your cap rates, but we do see some of the other net lease names doing deals in the sevens. And so I was wondering if you can maybe give us some sense as to maybe how you see the difference between going from, like, say, high sixes into the low mid sevens and what the the give and take might be there.

[William Lenehan, President & CEO at Four Corners Property Trust]

You know, certainly see things that are for sale that are you know, let's not draw too fine a point on it. Call it seven and a half caps in north. And they typically have they're either in sub sectors that we don't like, like pharmacy or experiential, or that we haven't historically been involved with, or the credit isn't very good, or the rents are really high. And so all those factors show up in our scorecard to scores that are insufficient for us to proceed. Now that doesn't mean that there isn't one transaction where you feel like you're getting a great price or another transaction where you still see real strategic reasons to lean in by 20 basis points or something like that.

[William Lenehan, President & CEO at Four Corners Property Trust]

But on average, what we've what we have seen is that cap rates that are higher enough from what we're posting to matter involve, you know, measurably more risk. And I would say that one of the things that's, I think, very helpful about our reporting regime is you you know what we're buying for that cap rate. And what we see some of our peers do is pursue what I would call barbell strategies where they disclose tenants that shareholders are happy that they're buying, but disclose a cap rate that involves a bunch of tenants that they don't talk about. And so I think our straightforward, very transparent strategy

[William Lenehan, President & CEO at Four Corners Property Trust]

should give

[William Lenehan, President & CEO at Four Corners Property Trust]

you comfort that what we're buying is thoughtfully selected and and not to hit some, you know, metric for a quarterly disclosure.

[Anthony Paolone, Executive Director at J.P. Morgan]

Okay. Thanks. And then just on on the pipeline, are there any larger type transactions that you see in the mix? Or is it pretty much all the one by ones?

[William Lenehan, President & CEO at Four Corners Property Trust]

It's a mix. We're always working on larger transactions. We have a handful in the hopper. I would reflect that we haven't really seen a dynamic where there's portfolio discounts. In fact, in some cases, we found that the larger transactions have more competition.

[William Lenehan, President & CEO at Four Corners Property Trust]

And, I think we saw that clearly in a large transaction, that one of our peers did last winter. So, it's a mixed, Anthony, but but I also wouldn't say that large transactions come at bargain prices by any means.

[Patrick Wernig, CFO at Four Corners Property Trust]

Okay. Thanks.

[Operator]

Thank you. Our next question comes from Wes Golladay from Baird. Your line is now open. Please go ahead.

[Wesley Golladay, Senior Research Analyst at Robert W. Baird & Co]

Hey. Good morning, guys. Can you talk about how you underwrite the smaller franchisees? I think you mentioned you do get a corporate guarantee, but how how small are some of these franchisees?

[William Lenehan, President & CEO at Four Corners Property Trust]

Yeah. So our small franchisees, I think, would be considered very large for our peers. We don't have a ton of franchisee exposure, and the franchisee exposure we have tends to be with franchise times, you know, 100 type size franchisees. So we get financials. We do a typical credit underwriting.

[William Lenehan, President & CEO at Four Corners Property Trust]

But franchisee credit is not a big part of our business. And I would say the dynamic where some of our peers will sort of put people into business by buying real estate for them or developing real estate for them, and you know, by definition, that's a very, very small sort of individual size business entity. It's not something we do.

[Wesley Golladay, Senior Research Analyst at Robert W. Baird & Co]

Okay. And then you have been building up the team, developing a lot of new relationships over the last few years. Just curious how much the new deal flow is from these new relationships?

[William Lenehan, President & CEO at Four Corners Property Trust]

You know, it's there's some of that, but a lot of it is, frankly, deals that we've been tracking for years and, now have an advantage cost of capital and sellers are more willing to meet us on price because of the overall macro uncertainty. So I don't think it's the algorithm isn't something like new acquisition person at six months has four relationships, and at twelve months has eight, and therefore, can count on deal flow from that. You know, we we have been doing more outreach outreach recently. And as you mentioned, we've expanded our acquisition team. We have the largest acquisition class coming in this summer of three folks out of undergrad and two interns.

[William Lenehan, President & CEO at Four Corners Property Trust]

And we're really excited to get them up to speed. I think they'll make a real impact.

[Wesley Golladay, Senior Research Analyst at Robert W. Baird & Co]

Okay. Thanks.

[Operator]

Thank you. Our next question comes from Kyle Katarinke from Janney. Your line is now open. Please go ahead.

[Kyle Katorincek, VP - Equity Research at Janney Montgomery Scott]

Hey. Good morning, guys. What is the range of EBITDAR coverage ratios for recent acquisitions? And is is there any difference between restaurant and non restaurant segments there?

[William Lenehan, President & CEO at Four Corners Property Trust]

Yeah. We don't disclose on a quarterly basis coverage ratios. Obviously, we have to sign confidentiality agreements to get financials. And so I don't think we're gonna be in a position to disclose those on a quarterly basis. I would say on a I think the credit metrics are fairly similar across the different industries.

[William Lenehan, President & CEO at Four Corners Property Trust]

Although I would say within medical, it's a little bit harder to define four wall, because you might have a patient who's visiting our retail outpatient center, for example, but also as part of their care going to the hospital system that it's associated with. So saying that that four wall is X is a little bit more ambiguous. But the credit is very similar on a corporate leverage basis, you know, being in the mid single digits, and four wall coverage being, you know, typically three plus times.

[Kyle Katorincek, VP - Equity Research at Janney Montgomery Scott]

Okay. And then at what point would you guys consider lease too conservative where there's potential opportunity cost in the form of lost rents? And then on the flip side, what point would you feel uncomfortable underwriting a new lease in terms of coverage? Just trying to get

[Kyle Katorincek, VP - Equity Research at Janney Montgomery Scott]

a range of and how you guys think about that. Thanks.

[William Lenehan, President & CEO at Four Corners Property Trust]

Yeah. So if I understand your question, is could we take more risk and still be in a safe position? Yeah. If that's the gist of

[Kyle Katorincek, VP - Equity Research at Janney Montgomery Scott]

Yeah.

[Kyle Katorincek, VP - Equity Research at Janney Montgomery Scott]

Exactly. Yeah. Then, like, on the yeah.

[Kyle Katorincek, VP - Equity Research at Janney Montgomery Scott]

Then, like, upper limit too conservative of the coverage ratio. Like, at what point is that?

[Kyle Katorincek, VP - Equity Research at Janney Montgomery Scott]

Is that six six and a half times?

[William Lenehan, President & CEO at Four Corners Property Trust]

Sure. So, well, I guess I'd make two reflections. To back test, are we being too conservative? We do go back and look at things that we looked at and didn't do. And it's very clear to us that the outcomes of the things that we passed on are far less favorable than what we've done.

[William Lenehan, President & CEO at Four Corners Property Trust]

Okay? And that's both in taking buildings that to the naked eye, you know, it's a brand it's a it's a business that we bought. It's a brand that we've bought. But what you can't see is the lease is too short or the rents are too high or the tenant has bad financials that that very frequently things that we've looked at and passed on have turned out to be, you know, unfortunate outcomes. So that's one.

[William Lenehan, President & CEO at Four Corners Property Trust]

Two, I would observe that rents on that lease are relatively random. And so you may have a a Burger King that has $70,000 worth of rent and one that has a hundred and $7,000 worth of rent and one that has a hundred and $70,000 worth of rent. And they look exactly the same other than their rent number. And so the coverage would obviously be way different on the $70,000 worth of rent than the 170,000 And so I think a big part of our job is searching for properties that have great performance but reasonable rents. And so I don't think that there's an upper limit of what we would consider.

[William Lenehan, President & CEO at Four Corners Property Trust]

Now obviously when that lease matures, which is usually very far into the future given extension options, you know, we have some rent upside, and we have experienced some positive outcomes there. The last thing I'd point out, maybe a different answer to your question. Having gone through the financial crisis earlier in my career, the dot com bust very early in my career, COVID, more recently. There's a a dynamic where when when there's substantial uncertainty and you have the ability to be on offense, there's enormous advantage to that. And so we go into this current environment with the lowest leverage we've had in a long time.

[William Lenehan, President & CEO at Four Corners Property Trust]

We have more liquidity from undrawn forwards than we've had in a long time. And we have a portfolio that's in fantastic shape. So if the issue is we might be a little bit too conservative historically, I'll take that in order to be in a position to be aggressive if opportunities knock.

[Kyle Katorincek, VP - Equity Research at Janney Montgomery Scott]

Thank you. I appreciate the context.

[Operator]

Thank you. Our next question comes from R. J. Milligan from Raymond James.

[RJ Milligan, Managing Director at Raymond James]

Bill, you talked about running leverage at the lowest level it's been in quite some time, if not ever. I'm just curious, given the fact that your cost of capital is attractive here, how do you think about potentially further delevering or loading up the balance sheet for opportunities that might arise later?

[William Lenehan, President & CEO at Four Corners Property Trust]

Yeah. So it's a great question. And and I think the interesting dynamic is, as Pat mentioned, when SOFR is 4% and so that the you know, you you pay your dividend, in essence, on the forward, and you receive so for and there's some fees involved. But that's the basic building blocks. The cost of having this liquidity is very low.

[William Lenehan, President & CEO at Four Corners Property Trust]

When rates were zero and you're paying a 5% dividend, well shucks, it gets expensive if you have too much of a forward and you're not using it in a timely manner. So we felt that the opportunity cost of having substantial liquidity was very minimal. And we were opportunistic because of the fee structure of the ATM. And just so everyone's clear, ATM has been the technology we've used to raise equity almost exclusively for something like the last seven or eight years. It has a very advantaged fee and discount structure.

[William Lenehan, President & CEO at Four Corners Property Trust]

And so when that capital was available, because the opportunity cost of holding that forward position was minimal, we took advantage of it. And I think that puts us in a really good position. When I say it's volatile out there, it's not sort of my opinion. You you can look at the VIX, and it's it's a quite volatile environment. But we're you know, we love being very liquid when there's stress in the streets.

[RJ Milligan, Managing Director at Raymond James]

Okay. And and so, Bill, you you had given some same store stats on some of the tenants at the beginning of the call. Obviously, concerns out there that we might head into a recession Obviously, the data has been pretty mixed. But if we were to see a a a downturn or a recession, how do you think that might change the pipeline, whether it be volume, competition, or pricing?

[William Lenehan, President & CEO at Four Corners Property Trust]

You know, we went through COVID and our portfolio performed extremely well, but I wouldn't say there were bargains to be had on any sustained basis during that time. This is a different scenario. I think our portfolio will perform very well. We're essentially 100% occupied, so I can't promise that it would improve, because it's about as full as it can be. But I think we'd be in a really good position.

[William Lenehan, President & CEO at Four Corners Property Trust]

Do we then have interesting opportunities to deploy capital in acquisitions? Unclear, to an earlier question, we tend to target sectors that have less targeted tariff exposure. There's been two Wall Street research reports on the net lease industry and tariff exposure. I think we were sort of the most favorable of the industry in both of those. I encourage you to track them down.

[William Lenehan, President & CEO at Four Corners Property Trust]

But will we get this situation where we have really interesting investment opportunities? I can't say for sure. I can say that we have the money for it. We have the people for it. We are focused on it.

[William Lenehan, President & CEO at Four Corners Property Trust]

But we we we need the market to come to us to find high quality deals that we can buy at at better than historic prices.

[RJ Milligan, Managing Director at Raymond James]

Okay. That's helpful. Thanks, guys.

[Operator]

Thank you. Our next question comes from Jason Wayne from Barclays. Your line is now open. Please go ahead.

[Jason Wayne, VP - Equity Research at Barclays]

Hi. Good afternoon. Rent collections ticked up a bit this quarter. They're still strong, but I'm just wondering what types of tenants are nonpaying now and if you're working on anything at those properties to increase the collections numbers further.

[William Lenehan, President & CEO at Four Corners Property Trust]

Yeah. It's basically one tenant. We have a personal guarantee from that tenant that we're pursuing, and we've made substantial progress releasing the buildings. So it's very, very small, sort of a one off thing.

[Jason Wayne, VP - Equity Research at Barclays]

Mhmm. And and and what kind of releasing spreads, you know, have you gotten on trade outs like that historically?

[William Lenehan, President & CEO at Four Corners Property Trust]

Yeah. It's it's just a couple buildings. I think we'll be in a good spot, but we we're not gonna comment on ongoing lease negotiations when it's only a couple buildings.

[Jason Wayne, VP - Equity Research at Barclays]

Thank you for the

[Jason Wayne, VP - Equity Research at Barclays]

questions.

[William Lenehan, President & CEO at Four Corners Property Trust]

Yep.

[Operator]

Thank you. Our next question comes from James Kamert from Evercore. Your line is now open. Please go ahead.

[James Kammert, Managing Director at Evercore ISI]

Thank you. Thanks for the time. Kind of a bigger picture question, Bill. You mentioned you're building acquisition staff and have been. You've got the balance sheet in a great position.

[James Kammert, Managing Director at Evercore ISI]

Are you adding other sort of capabilities or data sets to your underwriting? Know you've been pleased with like deal path technology, etcetera, to date, but I'm just curious, you know, how you're setting up for the next phase of growth and if that entails any other incremental steps that you're doing to further enhance the underwriting? Thanks.

[William Lenehan, President & CEO at Four Corners Property Trust]

That's a really good question. You know, I think like every company, we're trying to figure out how AI will make us more efficient. I think we have just more people to work on projects and to explore potential new industries. We've built more substantially more muscle in our asset management group with some really exciting hires there that are getting up to speed. Historically, we didn't need much of that function.

[William Lenehan, President & CEO at Four Corners Property Trust]

But as we have added several hundred buildings, it's become our portfolio is in fantastic shape, but there's more to do. But I'm really excited, as I said, about the new folks that are joining. They'll be able to to, you know, use the technology that we have. We'll be able to put more emphasis on automating things that can be automated. But there's a there's a lot that we can do with with the existing technology that we have.

[William Lenehan, President & CEO at Four Corners Property Trust]

And and as you mentioned, you know, deal path is an integral part of running our business. And we've done a number of investor sessions where we take people through our underwriting and deal path. If there are those who'd like to do that, we'd be more than, happy to do it. I think investors have almost universally found it, a valuable forty five minutes of their time.

[James Kammert, Managing Director at Evercore ISI]

Thank you for your time.

[Operator]

Thank you. We currently have no further questions. This concludes our Q and A and consequently today's call. Thank you for joining us. You may now disconnect your lines.

Participants

Executives

• Patrick Wernig, CFO
• William Lenehan, President & CEO
• Joshua Zhang, Managing Director of Investments, Head of the Investment Team

Analysts

• John Kilichowski, Vice President - Equity Research Analyst at Wells Fargo
• Kathryn Graves, Equity Research Scientific Associate at UBS Group
• Anthony Paolone, Executive Director at J.P. Morgan
• Wesley Golladay, Senior Research Analyst at Robert W. Baird & Co
• Kyle Katorincek, VP - Equity Research at Janney Montgomery Scott
• RJ Milligan, Managing Director at Raymond James
• Jason Wayne, VP - Equity Research at Barclays
• James Kammert, Managing Director at Evercore ISI