Executive Summary / Key Takeaways

• Four Corners Property Trust (FCPT) is a net lease REIT strategically focused on acquiring high-quality restaurant and retail properties, differentiating itself through disciplined underwriting and a focus on durable concepts with strong tenant credit and profitable unit-level economics.
• The company has demonstrated significant acquisition momentum, achieving its highest first quarter volume in history in Q1 2025 ($57 million across 23 properties) and closing $269 million in acquisitions over the past eight months, leveraging an improved cost of capital and a growing pipeline of accretive opportunities.
• FCPT maintains a robust capital position characterized by low leverage (4.4x net debt to adjusted EBITDAre), substantial liquidity ($617 million available), and a laddered debt maturity profile with no significant near-term maturities, providing flexibility for continued growth and resilience against market volatility.
• The existing portfolio exhibits strong performance with high occupancy (99.4%), excellent rent collection (99.5% in Q1 2025), and robust rent coverage (4.9x), underpinned by a strategic avoidance of problem net lease sectors and a focus on nationally recognized, high-performing tenants.
• FCPT's operational "technology," including internal systems for deal tracking, data analytics for underwriting, and tools like Deal Path, enhances sourcing capabilities and supports disciplined decision-making, contributing to the company's ability to identify and close high-quality, accretive transactions in its target niche.

The Disciplined Pursuit of Quality in Net Lease

Four Corners Property Trust operates within the competitive landscape of single-tenant net lease real estate, a sector populated by larger, more diversified players like Realty Income (O), National Retail Properties (NNN), Spirit Realty Capital (SRC), and Agree Realty Corporation (ADC), as well as numerous private investors and funds. FCPT distinguishes itself with a focused strategy centered on the ownership, acquisition, and leasing of high-quality restaurant and retail properties on a triple-net basis. This niche specialization, while potentially leading to tenant or sector concentration risks, is coupled with a rigorous, disciplined underwriting approach that prioritizes properties with strong unit-level economics, creditworthy tenants, and rents that are well-covered by tenant profitability.

The company's journey began in November 2015 with a spin-off from Darden Restaurants (DRI), initially inheriting a portfolio of 418 properties primarily leased to Darden brands. Since then, FCPT has strategically expanded and diversified its portfolio, growing to 1,236 leases across 47 states as of Q1 2025. This expansion has been guided by the objective of decreasing reliance on Darden (which now represents approximately 47% of scheduled base rents) and increasing exposure to non-restaurant retail sectors such as automotive service and medical retail, while maintaining a focus on durable concepts and well-located sites.

A key element supporting FCPT's disciplined strategy is its internal operational framework, which includes proprietary systems for tracking opportunities and leveraging data and analytics for adaptive underwriting. Tools like Deal Path are integral to running the business, enhancing sourcing capabilities and supporting efficient, organized transaction processing. This operational "technology" and the culturally ingrained scorecard system for evaluating potential acquisitions contribute to FCPT's ability to identify and execute on high-quality deals that meet its stringent criteria, helping to avoid properties in sectors or with tenant characteristics that have historically proven problematic for other net lease investors. Management is also exploring how AI can further enhance efficiency. This focus on operational excellence in sourcing and underwriting provides a competitive edge in identifying accretive opportunities within its targeted niche.

Operational Strength and Financial Performance

FCPT's strategic focus on high-quality assets and tenants is reflected in its operational performance. The portfolio boasts high occupancy, standing at 99.4% as of March 31, 2025. Rent collection remains robust, with 99.5% of baseline rent collected in Q1 2025. The company's rent coverage, reported at 4.9x for the majority of the portfolio in Q1 2025, remains among the strongest in the industry, providing a significant cushion against potential tenant performance fluctuations.

This is supported by the strong performance of core tenants like Darden's Olive Garden and LongHorn, and Brinker's (EAT) Chili's, which are sector leaders often outperforming industry peers. For instance, Chili's reported same-store sales growth of 31.6% for the quarter ended March 2025, while Olive Garden and LongHorn saw growth of just under 1% and 2.6% respectively for the three months ended February 2025.

The company's disciplined approach extends to managing lease maturities. Significant progress has been made on 2025 maturities, with 88% of tenants already extending or indicating intent to do so, reducing 2025 expirations to just 0.5% of ABR. The large block of Darden leases from the spin-off, which begin to mature in 2027, are viewed with confidence due to their strong coverage (approaching 6x) and contractual extension options with fixed annual escalators (typically 1.5%).

Financially, FCPT has demonstrated steady growth. For the three months ended March 31, 2025, rental revenue increased by 8.4% year-over-year to $63.482 million, primarily driven by acquisitions. Total revenues grew to $71.476 million from $66.467 million in the prior year period. Net income available to common shareholders was $26.156 million ($0.26 per basic and diluted share) in Q1 2025, compared to $24.044 million ($0.26 per basic and diluted share) in Q1 2024. Adjusted Funds from Operations (AFFO) per diluted share grew to $0.44 in Q1 2025, a 2.3% increase from $0.43 in Q1 2024.

Operating expenses saw increases, with general and administrative expenses rising 23% to $7.639 million, largely due to stock-based compensation, though cash G&A excluding stock compensation remained relatively stable at $4.9 million (7.7% of cash rental income). Depreciation and amortization increased 7.1% to $14.429 million due to portfolio growth. Interest expense rose by $0.5 million to $12.731 million, reflecting increased borrowings to fund acquisitions, partially offset by lower revolver utilization. The small restaurant operations segment contributed $7.994 million in revenue and $0.220 million in segment EBITDA in Q1 2025.

FCPT's TTM financial ratios reflect a healthy, albeit niche-focused, operation. Gross Profit Margin stands at 85.07%, Operating Profit Margin at 55.52%, and Net Profit Margin at 37.57%. These margins compare favorably to some peers, though larger, more diversified REITs like Realty Income may exhibit slightly higher margins (e.g., O's TTM Gross Margin 93%, Operating Margin 44%, Net Margin 16% - noting O's lower net margin is influenced by various factors including scale and tax structure differences). FCPT's EBITDA Margin is a robust 76.24%.

Capital Strength and Growth Outlook

A cornerstone of FCPT's investment thesis is its prudent capital management and strong balance sheet, which management describes as being in a position to be "aggressive if opportunities knock." As of March 31, 2025, the company held $22.3 million in cash and cash equivalents and had full access to its $350 million revolving credit facility, which matures in February 2029 (with extension options). The recent amendment to the credit facility increased borrowing capacity and extended maturities, providing significant flexibility. FCPT also utilizes an At-The-Market (ATM) equity program, with $231.90 million available for issuance as of Q1 2025 and $8.80 million shares outstanding under forward sale agreements. The ability to raise forward equity quickly and at scale has proven effective for match funding acquisitions.

FCPT's leverage is conservative, with net debt to adjusted EBITDAre at a 7-year low of 4.4x (inclusive of outstanding net equity forwards) as of March 31, 2025. This compares favorably to peers like Realty Income (TTM Debt/Equity 0.69), National Retail Properties (TTM Debt/Equity 1.00), Spirit Realty Capital (2022 Debt/Equity 0.78), and Agree Realty Corporation (TTM Debt/Equity 0.51), positioning FCPT with ample capacity for future debt-funded growth while maintaining financial flexibility. The fixed charge coverage ratio is a healthy 4.4x.

The company has also actively managed interest rate risk through swaps, hedging $535 million of variable-rate debt and achieving a weighted average interest rate of 3.87% on term loans after hedges in Q1 2025. With no significant debt maturities until November 2025, FCPT has essentially no near-term debt obligations for nearly two years, further enhancing its liquidity profile.

This strong capital position fuels FCPT's acquisition strategy. The first quarter of 2025 marked the highest Q1 acquisition volume in company history, with $57.8 million invested in 23 properties at a blended 6.7% cap rate and a weighted average lease term of 17 years for Q1 acquisitions. This momentum follows a record Q4 2024 and reflects the company's ability to "turn the acquisition machine back on" as its cost of capital improved in the latter half of 2024. Acquisitions included sale-leasebacks with corporate and franchisee Burger King operators and a Whataburger franchisee, often negotiated off-market. While FCPT does not provide acquisition guidance, management is actively adding to the pipeline, seeing opportunities consistent with their quality and pricing standards. They expect new investments to be roughly evenly split between restaurants, automotive service, and medical retail over the long term, although quarterly volumes may vary.

Management anticipates cash G&A expenses for 2025 to be in the range of $18 million to $18.5 million, reflecting continued efficient growth and scaling benefits. The company's focus remains on accretive growth, prioritizing quality and disciplined underwriting over simply increasing volume.

Risks and Competitive Dynamics

Despite its strengths, FCPT faces inherent risks. Tenant concentration, particularly with Darden (47% of ABR) and Olive Garden (33.7% of lease revenue), remains a key risk, although this has decreased significantly since the spin-off. Geographic concentration, with Texas representing 10.2% of revenue, also exists. While FCPT's focus on strong tenants and high rent coverage mitigates some of this risk, a significant downturn affecting a major tenant or a specific geographic market could still impact performance. The company has successfully navigated recent tenant-specific issues, such as the Red Lobster bankruptcy and a Pizza Hut franchisee bankruptcy, with minimal disruption, which speaks to the quality of its underwriting and asset selection.

The competitive landscape is dynamic. Larger, more diversified REITs like Realty Income benefit from scale and broader tenant/sector exposure, potentially offering greater stability during sector-specific downturns. However, FCPT differentiates itself by avoiding sectors it deems problematic (theaters, pharmacies, high-rent car washes, big box retail) and focusing on its niche expertise, which management believes leads to higher-quality assets and more stable cash flows within its target segments. While some peers may pursue "barbell strategies" involving higher-risk assets for yield, FCPT emphasizes transparency and disciplined underwriting, even if it means passing on deals with higher reported cap rates (e.g., 7.5% and north) that involve measurably more risk. FCPT's operational systems and underwriting scorecard are intended to provide a competitive edge in consistently identifying and acquiring high-scoring assets in its niche.

Macroeconomic factors, including interest rates and potential recessionary pressures, also pose risks. While FCPT's fixed-rate debt and hedging strategy mitigate some interest rate risk, changes in borrowing costs can still impact the accretion of future acquisitions. A recession could lead to a pullback in tenant performance, although FCPT's high rent coverage provides a buffer. The company believes its service-based tenants are less exposed to tariff impacts compared to traditional retail.

Conclusion

Four Corners Property Trust presents a compelling investment thesis grounded in its disciplined, niche-focused strategy within the net lease real estate sector. Since its spin-off, FCPT has successfully diversified its portfolio beyond its initial Darden concentration, leveraging its expertise to acquire high-quality restaurant and retail properties with strong tenant credit and favorable unit-level economics. The company's operational capabilities, including its proprietary underwriting systems and scorecard, support its ability to source and execute on accretive transactions, even in a competitive market.

FCPT's robust capital structure, characterized by low leverage, substantial liquidity, and a well-managed debt maturity profile, provides a strong foundation for continued growth and resilience. Recent acquisition momentum demonstrates the company's capacity to deploy capital effectively as market conditions and its cost of capital align. While tenant and sector concentration remain key risks, FCPT's strategic avoidance of problem sectors and focus on high-performing tenants with strong rent coverage helps mitigate these vulnerabilities. For investors seeking exposure to the net lease sector through a disciplined, specialized REIT with a strong balance sheet and a clear path for accretive growth, FCPT warrants consideration.