Executive Summary / Key Takeaways

• FrontView REIT ($FVR) is an internally managed net-lease REIT focused on acquiring, owning, and managing properties with direct frontage on high-traffic roads, leveraging a niche acquisition strategy in a fragmented market to source assets at above-market cap rates.
• The company recently transitioned to an internally managed structure post-IPO in October 2024, eliminating external management fees and gaining direct control over operations and strategy, which is expected to enhance long-term efficiency.
• FVR is actively executing its growth strategy, acquiring over $100 million in Q4 2024 and nearly $50 million in Q1 2025 at attractive cap rates (averaging ~7.9%), with plans for $175 million to $200 million in acquisitions in 2025, driving projected AFFO growth.
• While facing short-term headwinds from tenant issues, particularly in the sit-down fast-casual and pharmacy sectors, leading to a watch list representing ~4% of ABR at the end of 2024 and projected 2-3% bad debt in 2025, management is actively addressing these vacancies with expectations of substantial recovery by late 2025.
• The company has optimized its capital structure post-IPO by repaying legacy debt and securing new facilities, including fixing its $200 million term loan at a favorable rate (4.96% all-in), providing liquidity for acquisitions while targeting a prudent leverage ratio below 6.0x Net Debt to Annualized Adjusted EBITDAre over time.

The Frontage Advantage: A Niche Strategy in a Fragmented Market

FrontView REIT ($FVR) operates within the dynamic net-lease real estate sector, distinguishing itself through a focused investment strategy centered on properties with direct frontage on high-traffic roads. This niche approach targets prominent locations highly visible to consumers, primarily leased to a diversified group of service-oriented tenants. The company's recent history is marked by a significant transformation, transitioning from an externally managed predecessor (NADG NNN Property Fund LP) to an internally managed, publicly traded REIT following its IPO in October 2024. This internalization, completed on October 2, 2024, is a pivotal strategic shift, eliminating external management fees and bringing operational control in-house, a move often viewed favorably by investors for its potential to align management incentives and reduce costs over the long term.

The net-lease model, where tenants are generally responsible for property expenses like taxes, insurance, and maintenance, forms the backbone of FVR's business, providing a relatively stable revenue stream. However, the competitive landscape for net-lease properties is fragmented, involving a mix of large institutional REITs, private equity firms, and individual investors, particularly in the market for smaller, individual assets that FVR often targets. While larger, more diversified REITs like Realty Income (O) or specialized players like Prologis (PLD) in industrial or American Tower (AMT) in communications infrastructure operate at a different scale and focus, FVR leverages its specific market niche and an "entrepreneurial approach" to sourcing acquisitions. This allows the company to work effectively with smaller and mid-sized brokerage firms, capitalizing on situations where traditional buyers, including 1031 exchange investors facing challenges with sustained high interest rates and financing, may struggle to close. This disciplined sourcing and demonstrated "surety of close" provide FVR with a competitive edge, enabling it to acquire properties at above-market cap rates.

Specific technological differentiators like proprietary software platforms or AI-driven analytics are not detailed in a quantifiable manner, but the transition to internal management inherently allows for greater control and potential optimization of operational processes. The ability to directly manage property operations, tenant relationships, and acquisition underwriting post-Internalization is a strategic advantage. This internal expertise, combined with the focus on desirable frontage locations, underpins the company's ability to execute its strategy, manage its portfolio, and identify opportunities for repurposing or re-tenanting assets more effectively than might be possible under an external structure.

Building the Portfolio: Growth and Operational Realities

FVR has actively pursued portfolio growth since its public debut. In the year ended December 31, 2024, the company acquired 29 properties for $104.2 million. This momentum continued into the first quarter of 2025, with 17 properties acquired for approximately $49.9 million. These acquisitions were completed at attractive weighted average initial cash capitalization rates, averaging 7.93% in Q4 2024 and approximately 7.9% in Q1 2025, exceeding the company's prior Q1 guidance of 7.5%. This ability to source accretive deals is a direct result of its targeted acquisition strategy within the less competitive private market segment.

The company's portfolio as of March 31, 2025, comprised 323 properties across 37 states, with an ABR-weighted average remaining lease term of approximately 7.4 years. Diversification is a key tenet, with no single tenant brand exceeding 3.1% of ABR and the top 10 tenant brands representing 22.6%. Approximately 97.9% of leases include contractual rent escalations, typically ranging from 1% to 3% annually, providing a degree of built-in revenue growth.

Recent operational performance reflects both the benefits of growth and specific portfolio challenges. For the three months ended March 31, 2025, rental revenues increased by 6.0% year-over-year to $16.243 million, primarily driven by the expanded property base. Operating expenses saw shifts; while property management and asset management fees were eliminated post-Internalization (compared to $0.5 million and $1.0 million, respectively, in Q1 2024), general and administrative expenses increased significantly by $2.1 million due to the costs associated with internalizing management, including employee and stock-based compensation ($0.6 million). Interest expense decreased by $2.2 million year-over-year, mainly due to a lower overall debt balance following the repayment of legacy ABS notes. The company reported a net loss of $1.337 million for Q1 2025, an improvement from the $3.369 million net loss in Q1 2024.

A notable challenge has been tenant health in certain sectors, particularly sit-down fast-casual restaurants and, to a lesser extent, pharmacies. This resulted in a watch list of properties representing about 4% of ABR at the end of 2024 and contributed to approximately 200 basis points of bad debt recognized in Q4 2024. Management views this as a short-term impact to AFFO and is actively working to repurpose, re-lease, or sell these assets, leveraging the desirability of their frontage locations. They anticipate a substantial majority of these properties being back online by late 2025 at meaningful recovery rates.

Capital Structure and Outlook

FVR has taken steps to optimize its capital structure post-IPO. The company secured a new $250 million revolving credit facility and a $200 million term loan, providing enhanced financial flexibility. A key move to manage interest rate risk was fixing the entire $200 million term loan in March 2025 at a three-year swap rate of 3.66%, resulting in an attractive all-in borrowing rate of 4.96%. This hedges a significant portion of its debt against potential future interest rate increases. As of March 31, 2025, the company had total debt of $312 million and a Net Debt to Annualized Adjusted EBITDAre ratio of approximately 5.7x, within its long-term target range below 6.0x.

The company had $138 million of available capacity on its Revolving Credit Facility as of March 31, 2025, providing liquidity for near-term acquisitions. Looking ahead, FVR has initiated 2025 AFFO per share guidance in the range of $1.20 to $1.26. This guidance is underpinned by key assumptions, including planned real estate acquisitions between $175 million and $200 million and property dispositions ranging from $5 million to $20 million. The guidance also incorporates an anticipated bad debt expense of 2% to 3% of cash ABR, reflecting the known impact from the current watch list. Management expects to continue acquiring properties at cap rates above 7.5% through the second quarter of 2025, driving accretive growth. The resolution of the watch list properties is expected to contribute positively to performance in the latter half of the year.

While the company's acquisition strategy is dependent on accessing capital, particularly given the REIT requirement to distribute most taxable income, management believes it has sufficient liquidity through its debt facilities and potential future capital raises. The current stock price implies a cost of equity that management acknowledges is "not great," making equity offerings less immediately attractive. However, they are sensitive to the share price and have the flexibility to adjust the pace of acquisitions if necessary to maintain a prudent balance sheet. The company has declared a quarterly dividend of $0.21 per share, balancing shareholder returns with reinvestment needs for growth.

Risks and Competitive Positioning

Investing in FVR involves considering several key risks. The primary operational risk stems from tenant health and potential vacancies, as highlighted by the current watch list and projected bad debt. While management is confident in its ability to re-tenant or sell properties due to their desirable locations, the timing and recovery rates for these assets could impact financial performance. Interest rate risk, although partially mitigated by the recent swap, remains a factor on floating-rate debt. The ability to access debt and equity capital markets on favorable terms is crucial for funding acquisitions and managing the balance sheet, and market conditions can fluctuate. The recent termination of the CFO for cause introduces a degree of uncertainty regarding leadership stability, although interim and permanent replacements have been appointed.

In the competitive landscape, FVR differentiates itself not through proprietary technology (as specific details are not available) but through its specialized acquisition focus on frontage properties and its direct sourcing capabilities in a fragmented market. While larger, more established REITs like Realty Income benefit from scale, brand recognition, and potentially lower costs of capital, FVR's niche allows it to target higher-yielding assets that may be overlooked or harder for larger players to aggregate efficiently. Its internal management structure, post-Internalization, positions it to potentially achieve greater operational efficiency and cost control compared to its externally managed past or certain externally managed peers. The company's ability to execute its acquisition pipeline at attractive cap rates and successfully manage tenant issues will be critical determinants of its competitive success and value creation relative to both large, diversified REITs and smaller, niche players.

Conclusion

FrontView REIT presents an investment thesis centered on leveraging a distinct niche in the net-lease market – properties with high-traffic frontage – to drive accretive growth. The transition to an internally managed structure provides a foundation for operational efficiency and strategic alignment. While the company is navigating a period of elevated tenant-specific challenges, particularly in certain retail sectors, management's proactive approach to addressing these vacancies, combined with a robust acquisition pipeline sourced at attractive cap rates, supports the potential for meaningful AFFO growth in 2025. The optimized capital structure provides liquidity and mitigates some interest rate risk. Investors should monitor the successful resolution of the watch list properties, the execution of the acquisition plan, and the company's ability to access capital markets as key indicators of its ability to deliver on its growth strategy and unlock the value inherent in its frontage-focused portfolio.