Four Corners (FCPT) Earnings Call Transcript

Image source: The Motley Fool.

DATE

Feb. 12, 2026 at 12 p.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — William Howard Lenehan
• Chief Financial Officer — Patrick L. Wernig
• Chief Investment Officer — Joshua Zhang

TAKEAWAYS

• Acquisition activity -- $95,000,000 of net lease properties acquired in Q4 at a 7% blended cap rate, with a total of $318,000,000 acquired for the full year, funded primarily through equity and low-rate term loans.
• Portfolio growth -- The company finished 2025 with 1,325 leases, reflecting expansion through 53 transactions, with most deals sized between $5,000,000 and $20,000,000 and no large portfolio transactions.
• Tenant concentration and sales metrics -- Olive Garden, Longhorn, and Chili's, which together represent over 51% of portfolio rent, reported same-store sales growth of 9% for Chili's and nearly 5% and 6% for Olive Garden and Longhorn, respectively, in the most recent periods.
• Bahama Breeze exposure -- Exposure to Bahama Breeze is 1.3% of base rent across 10 properties, all with a minimum of 1.7 years of lease term remaining; discussions are ongoing for possible conversions to other Darden brands, with active tenant interest if backfilling becomes necessary.
• Diversification progress -- 37% of rent comes from outside casual dining, including 13% automotive service, 11% quick service restaurants, and 10% medical retail, with new acquisitions in grocery and equipment rental sectors during Q4.
• Leverage and liquidity -- Net debt to adjusted EBITDAre was 4.9x at quarter-end (5.1x excluding forward equity), marking the sixth consecutive quarter below 5.5x, with over $220,000,000 in liquidity available before reaching the 5x leverage level.
• Debt profile -- 98% of total debt is fixed at a blended cash interest rate of 4%, with no significant maturities until December 2026 and 95% of floating-rate debt fixed through November 2027 at a 3% rate.
• Q4 AFFO results -- AFFO per share was $0.45 for Q4 and $1.78 for the full year, representing 2.9% growth year over year.
• Rental income and G&A -- Q4 capital income reached $67,500,000, up 11.1% year over year, and cash G&A expense for the year was $18,000,000, representing 6.9% of rental income, at the bottom of guidance.
• Occupancy and rent collection -- Occupancy stood at 99.6%, with 99.5% of base rent collected in Q4 and 99.8% for the year; 95% of leases expiring in 2025 remain occupied.

Need a quote from a Motley Fool analyst? Email pr@fool.com

RISKS

• An impairment was taken on a Hardee's property in Gladstone, Alabama that has been vacant and difficult to re-lease, as stated: "It was a Hardee's in Gladstone, Alabama. We've had a hard time releasing it. It's a tiny property."

SUMMARY

Four Corners Property Trust (NYSE:FCPT) highlighted substantial growth in both acquisition volume and diversification, with the company entering new segments such as grocery and equipment rental for the first time. Management repeatedly emphasized a conservative balance sheet, citing net leverage below historical ceilings and $220,000,000 in available liquidity, supporting continued acquisition capacity. AFFO per share grew 2.9% year over year, and rising same-store sales from anchor tenants contribute to stable portfolio metrics. The company reported that 98% of outstanding debt is fixed at rates well below current spot levels, reducing refinancing risk in the near term. Management signaled confidence in retaining and re-tenanting Bahama Breeze properties, where current exposure is modest and interest from new tenants is significant.

• CEO Lenehan said, "Today, our balance sheet is overequitized with net leverage near five times," pointing to a strategy of funding growth with equity rather than excessive leverage.
• The team reported average cap rates on Q4 acquisitions at 7%, the highest blended rate for the year, suggesting disciplined deal selection amid changing market conditions.
• CFO Wernig described fixed charge coverage as 4.8x, providing further evidence of prudent financial management.
• There are no significant debt maturities before December 2026, offering flexibility for additional capital deployment without short-term pressure.
• Active interest and high renewal rates on leases expiring in 2025 and 2026 support forward occupancy stability.

INDUSTRY GLOSSARY

• Net lease: A lease structure where the tenant is responsible for real estate taxes, insurance, and maintenance in addition to base rent.
• Cap rate (capitalization rate): The annual net operating income of a property divided by its purchase price, used to assess real estate acquisition yields.
• AFFO (adjusted funds from operations): A cash flow measure for REITs that adjusts FFO for recurring capital expenditures and other non-cash items to better reflect sustainable earnings.
• Adjusted EBITDAre: Earnings before interest, taxes, depreciation, and amortization for real estate, adjusted for performance tracking by REITs.
• ABR (annualized base rent): Contracted annual rental income from leases, excluding percentage rents or reimbursements.

Full Conference Call Transcript

William Howard Lenehan: Joshua Zhang will comment on our investment activity, and Patrick will discuss financial results and capital position. This past November marked our ten year anniversary as a public company. Over the past decade, we have grown from just four employees with 418 properties leased a single tenant into a platform with 44 team members, and 1,325 leases. We've acquired 2,300,000,000 of properties and paid out over a billion of dividends to our shareholders. We are proud of the portfolio and company, and we've built and look forward to continuing our mission to drive shareholder value via conservative and thoughtful capital allocation. During Q4, we acquired $95,000,000 of net lease properties at a 7% blend cap rate.

Total, during 2025, we acquired $318,000,000 of net lease properties. We largely funded these acquisitions with equity we raised on the end ATM via forward issuance. One important note on our acquisition volume is we accomplished this without the benefit of any large portfolio transactions. Most of the deals in 2025 were midsized transactions between 5,000,000 and 20,000,000 furthering our extremely granular and selective portfolio construction via high quality acquisition. We did this by staying the course of what has become core to FCPT's brand a focus on attractive real estate occupied by creditworthy tenants without sacrificing quality for volume or pat padding investment spread.

Even in an era of increased competition for larger net lease portfolios, we believe that we have a business model that can scale and score attractive opportunities for growth. Our in place portfolio retains its workers' quality with zero exposure to problematic retail sectors such as theaters, pharmacies, high rent car washes, and experiential retail. We have side stepped major tenant credit issues including zero bad debt expense in 2025, and have very little vacancy in the portfolio. Our rent coverage in Q4 was 5.1 times for the majority of our portfolio that reports this figure. This remains amongst the strongest coverage within the net lease industry.

To that end, our core anchor tenants of Olive Garden, Longhorn, and Chili's continue to be leaders within the net lease tenant universe. Most recently, Brinker reported Chili's same store sales growth of 9% for the quarter ended December 2025, which represents a two year sales growth comp of plus 43%. Olive Garden and Wildhorn reported same drills same store sales growth of near 56%, respectively, the quarter ended November 2025. Truly amazing results from our largest tenant who represent over 51% of our portfolio rent on a combined basis. This improves our portfolio metrics and further demonstrates the benefits of thoughtful asset selection and alignment with best in class tenants.

On the topic of our garden assets, Darden announced last week that they are shutting down the Bahama Breathe brand and are converting many of these locations to other Garden brands. Our current Bahama Breeze exposure is just 1.3% of base rent across 10 properties, which equates to an average rent 341,000 per property which is very reasonable. While it is early, are in discussions with Darden about these properties. And as of now, we do expect several of these stores to be converted to other Darden concepts. Further, these properties are all subject to leases with a minimum of one point seven years of term remaining.

During which time Darden will continue paying rent taxes, insurance, and all other costs at these locations while we seek new tenants. In the event that they do become permanent closures, have already received significant inbound inquiries about backloading locations over the past week, We have lots of confidence in the quality of the real estate of these properties and expect they could be retenanted at similar rents. It's worth noting the impact of our proactive approach to portfolio management here. We sold two high rent Bahama Breeze locations back in 2016 and 2018. In the 4.75 to 5% cap rate range.

This reduced our exposure to the brand by $2,000,000 in rent roughly 35% of where it would otherwise be today. Continue to make meaningful progress in the area of diversification. Olive Garden and Longhorn are 329% of our rent today, versus a combined 94% spinoff. While 37% of our rents come from outside of casual dining. This includes automotive service at 13% quick service restaurants at 11%, and medical retail at 10%. Our deal sourcing remains focused on central retail and services. In our view, creating a prudently positioned portfolio with limited exposure to TaroSense sensitive sectors and strategy centered on everyday consumer demand.

We are constantly evaluating new retail care categories we look to expand the top of our funnel for investments. Similar to our decision to expand into automotive service and medical retail properties, we consider business and AI resilience, availability of creditworthy tenants, real estate quality, and pricing relative attractiveness. Patrick is gonna discuss this in more detail. But a key takeaway is that since 03/2024, our last circled 520,000,000 of acquisitions, essentially all of the 171 buildings purchased over the last eighteen months. Have been funded 85% with equity only. Raised at attractive pricing and the balance funded with low rate term loans. So today, our balance sheet is over equitized.

Patrick L. Wernig: I'll repeat that.

William Howard Lenehan: Today, our balance sheet is overequitized with net leverage near five times. Further, we raise debt when would have required a 7% plus coupon. Now we can access much more favorable debt capital markets with a coupon rate in the 4.5 to 5.5% range. Depending on the structure and term. Whether term loans or notes. This is much more attractive given where we're seeing cap rates today. Are proud of the year that we put together from both the capital raising and acquisition funds The team has shown great growth over the last ten years since inception, and we feel that we are well positioned heading into 2026.

We enter the year with low leverage and ample dry powder for opportunities that may arise. Over to you, Josh.

Patrick L. Wernig: Thanks, Bill. I'll start with a review of this quarter's activity, more details on 2025 investments.

Joshua Zhang: In Q4, we acquired 30 properties with a weighted average lease term of ten years for $95,000,000 at 107% cap rate. This was a 20 basis point expansion over the previous quarter, our highest blended cap rate in 2025. We finished the year with 105 properties acquired for $318,000,000 at a 6.8% blended cap rate. This represents an average basis of $3,000,000 per property, and continues our strategy of partnering with creditworthy operators in selecting fungible low basis properties to further protect against any downside. Looking back 2025 was one of our busiest years to date. Our total investment volume increased 20% from 2024, and we had 53 unique transactions.

Said another way, our team was able to post stellar results without reliance on large portfolio transactions. This is important to note because, one, these large deals often command pricing premiums, for the ease of putting a greater amount of capital to work. And two, they often require buyers to accept all or nothing where a good chunk of properties may not fit our underwriting thresholds. That said, our team remains capable and ready to execute on these larger opportunities when the right deal comes to crack. But we are encouraged our platform can still post significant volume in years but we do not anchor a large portfolio yield sitting in market.

In Q4, we also expanded the team's capabilities outside of our main three categories, restaurants, automotive service and medical retail, with our acquisition of a Sprouts grocery store and our first equipment rental acquisition of United Rentals property. As Bill mentioned, our team is constantly evaluating new opportunities in adjacent sectors to understand the resilience of the business and the way they attract in this of their credit and real estate locations versus our existing portfolio. We feel that both the grocery and equipment rental sectors fit our existing underwriting approach of focusing on recession resistant essential service retailers with high quality, and fungible real estate.

Similar to how we approach our entrance into the automotive service and medical retail sectors, that is, by dipping our toes and building extensive knowledge next before launching an official strategy, we will follow the same pattern here While grocery and equipment rental are newer categories for us, we chose these specific properties because of their similarities to the asset we regularly purchase in our existing portfolio. For example, both are leased to best in class creditworthy operators in respective subcategories. Sprague's is a publicly traded grocer with more than 400 applications across The US, No debt. Our $8,600,000 basis in this location is also much lower than the 10,000,000 to $15,000,000 we typically see for the branded market.

United Rentals is also a publicly traded company with over 1,600 locations across The U. S. And is rated double b plus by S and P. They are the largest equipment rental provider in the nation, and have a demonstrated track record of strong operations. Continue to evaluate similar opportunities in these sectors for only so long as they match our existing underwriting thresholds and investment criteria. Now reflecting on our strategy going forward for 2026. 2025 evidenced substantial repeat counterparty transactions. A trend we expect to continue. Coupled with the expanding top of our funnel, we expect 'twenty six to be another strong year of increased diversification and expanded platform capabilities. Patrick?

William Howard Lenehan: Matthew?

Patrick L. Wernig: It's Josh. I'll start by talking about capital sourcing and the state of our balance sheet. We have full capacity under our $350,000,000 revolver and feel that we have the liquidity to continue executing our business plan in Q1 and into 2026. With respect to leverage at the end of Q4, our net debt to adjusted EBITDAre was just 4.9x, inclusive of outstanding net equity. Excluding our forward equity balance, our leverage is 5.1 times. This is our sixth consecutive quarter of leverage below 5.5 at the very bottom of our stated leverage range of five to 6x.

We've now fully settled our forward equity balance in 2025, but with a fully available revolver, we feel we still have ample capacity on the debt side. After including debt capacity and free cash flow, we have over $220,000,000 in liquidity before reaching the five times leverage, and substantially more than that before approaching six times. Said another way, we believe we could utilize low interest rates for all acquisitions in 2026 and still remain under our self imposed letters. As always, we aim to be optimistic to achieve the best cost capital on our funding decision this time, Martha. We are encouraged by the current state of the term loan market.

Which was much more constrained just a few years ago. As a reminder, five year term loans have historically been priced at 95 basis points over SOFR or an all in rate today of approximately 4.6% after swaps and before fees. Private place endowments would be higher than that but also accretive to current market cap rates while offering longer term incentive. With 95% of our floating rate debt fixed through November 2027, at 3% versus spot rate today at 4%. Overall, 98% of our debt staff is fully fixed, and our blended cash interest rate is 4%. We remain we maintain a very healthy fixed charge coverage ratio of 4.8 times.

I'd also like to remind everyone that in Q3 of last year, we removed the SOFR credit spread adjustment 10 basis points to our interest expense on the revolver per month. Our new borrowing rate on term loan for silver was 95 basis points and revolver is over plus 85 basis points. We've had a positive flow through to AFFO of approximately $600,000 per year. Turning to debt maturities. Including extension options, we have no debt maturities till December 2026, with $50,000,000 in private notes come due. Our Saturday maturity schedule will ensure we do not face significant maturity loss at any point thereafter.

That said, we are focused on the smallest common maturities in '26 and '27, We've been very encouraged by the liquidity in the bank market today. As well as the very attractive credit spreads being achieved in the private placement and public bond sector. Then in other words, we believe we have numerous avenues to address these minor maturities at track rates. And turning to some of the earnings highlights for Q4. We reported Q4 AFFO per share of $0.45 and our full year AFFO was $1.78 per share. Representing 2.9% growth over 2024. Q4 capital income was $67,500,000 representing growth of 11.1% for the quarter compared to last year.

Annualized tax base rent that leases in place at the quarter end is $264,200,000 and our weighted average five year annual cash rent escalator is 1.5%. Cash G and A expense was $18,000,000 for the year. The very bottom of our guidance range, and representing 6.9% cash rental income for the year compared to 7.1% over prior year. This improved operating leverage illustrates our continued efforts on efficient growth and the benefits of our improving scale.

Our new guidance range for cash generation in 2026 is $19,200,000 to $19,700,000 As for managing our lease maturity profile, 95% of the 41 leases expiring in 2025 remain occupied today, This includes a high renewal rate in two properties that were quickly released to new tenants. Additionally, we've started to make progress on our 42 leases expiring in 2026, Now represents just 1.5% of ABR. Down from 2.6% at the start of 2025. Our portfolio occupancy remains very strong today at 99.6%, benefiting from efforts to release our very limited number of back billing impacts. We collected 99.5% of base rent in Q4, and 99.8% for the year.

Last quarter, we did not see any material changes to our flexibility or credit reserves. Do you wanna call out Wendy's slide we introduced the presentation from page 11? We regularly see private market cap rate comps properties similar to the properties owned in our own portfolio. So our public valuation has been lower in recent months. We thought it would be helpful to hear our current implied cap rate to the blended cap rate. Are recently sold on these properties. It demonstrates a sizable gap between the higher value of our underlying asset when the stock is actually trading at. With that, we'll turn it back over to Claire for questions.

Thank you.: Thank you.

Operator: To ask a question, If you change your mind, please press 2. When preparing to ask your question, please ensure your device is unmuted locally. Our first question comes from Michael Goldsmith from UBS. Michael, your line is now open. Please go ahead.

William Howard Lenehan: Good morning. Thanks a lot for

Patrick L. Wernig: taking my question. First question is on the move into

Michael Goldsmith: United Rentals and industrial outdoor storage. Can you just talk a little bit about the market you see there, maybe the total addressable size? You know, it feels like some of some of your net lease peers have been moving into that space. So, like, what would you see for like a competition perspective there? And then if you could talk a little bit about how the cap rates in that space compared to the rest of your portfolio, that'd be helpful. Thanks.

William Howard Lenehan: Thanks, Michael. Well, I'm I'd say I've been following the sector for a long time. I was chair of the investment committee at Gramercy, you know, fifteen years ago when we were doing quite a bit of this. It's attractive. It's you know, a lot of the value is in the land residual If you're careful, you can get in at a good basis. There's creditworthy tenants.

Joshua Zhang: You know,

William Howard Lenehan: it's hard to get new sites entitled

Patrick L. Wernig: So there's

William Howard Lenehan: some entrenchment if you can find existing site very large addressable market,

Joshua Zhang: you know,

Patrick L. Wernig: very defensive.

William Howard Lenehan: And cap rates that make sense. So we've looked at a lot of them. We'll continue to pursue that strategy. There are players who focus on it now. One of them was just taking private by Brookfield, but it's a it's an attractive space. As is grocery, by the way. But we found that very often high credit grocers have you know, a much chunkier purchase price than we typically plan. But we're looking at both of those sectors and others on a continuous basis. But answer your question on TAM, you know, we can get back to you, but it's, you know, enormous compared to the size of our company.

Michael Goldsmith: Got it. Thanks for that. And then, second question, just following up on the Bahama Breeze. It sounds like you got ahead of this in a little bit in the prior year, so you still have a little bit of exposure here. Yeah. I guess, with I guess the question is just can you just kinda it sounds like rents are about the same of where or, the level of interest is high, but rents are about the same. Is that the right is that case? And then also, like, if you compare the publicized list, I think you've got, like, four or five locations remaining. So can you just kinda confirm that?

Just talk a little bit more about that. Thanks. Yeah.

William Howard Lenehan: I think that's that's right. There will be a handful that get converted to other garden brands. They'll be there may be one that we swap out with Darden for another property. And there'll be a couple that in a year and a half plus we have to release. We've been inundated with people interested in these sites. They're very well located. And I think we're being pretty conservative on the rents. But you know, it's we've sort of been working on this for a week, and we're sorting through a lot of people who are interested in taking the sites.

Michael Goldsmith: Thank you very much. Good luck in 2026.

William Howard Lenehan: Thanks, Michael.

Michael Goldsmith: Thank you.

Operator: Our next question comes from John Kilichowski from Wells Fargo. Your line is now open.

Joshua Zhang: Maybe just to stay on Bahama Breeze here. Bill,

John Kilichowski: forgive me if I missed in the opening remarks. You talked about the rents there. Are you able to talk about the performance at these assets? I'm just if they're getting converted, would that be at the same rent? And then for the assets that would need to turn in a year and a half, I mean, if you're getting substantial interest at this point, is there a potential for even a positive mark to market I'm curious like what the total loss is that you're kind of making into internal estimates

William Howard Lenehan: Yeah. I don't I don't think we're baking in losses. At all. These brands are Bahamurisa's brand had limited market expansion Simply, I think a lot of The US has a view on what Bahamian cuisine is. So it worked in the Southeast,

Patrick L. Wernig: and

William Howard Lenehan: it just wasn't relevant to the total size of garden. And so they'll convert some of these. They have existing leases, so there be a change in the rental rate would be my assumption. But we'll have know, brand new stores with higher AUV brands. And then for 1,325.

Patrick L. Wernig: Again, I this is Patrick. I would just add that, you know, when you look at that press release starting put out, and the list of sites that they wanna convert, there's still some moving pieces there. And you know, you have to factor in some of those stores that have really high quality real estate. Are restricted by covenants, by other tenants nearby, or by the shopping center. Itself. So you know, Darden's interest in converting a lot of these sites was clear, and it's just a matter of what they can do within the restrictions that are on those properties.

But the demand in the last week has been I'd say, tremendous from other tenants that wanna backfill these locations.

Joshua Zhang: Okay.

John Kilichowski: That's helpful. Thanks, Pat. Then maybe one another one for you just on the balance sheet. You've called the forwards. I think in the opening remarks, said two twenty.

Michael Goldsmith: Of

John Kilichowski: liquidity gets you to 5.5. I'm just curious how you think about managing the balance sheet. I know, Bill, you kept saying over equitized. At what point, the high end is six, but maybe as you get to five, in an effort to not necessarily reach the high end, do you start to maybe pull on thinner spreads on equity at a certain point or you kinda stick to your guns that you'll ride you know, that number up to six? And then if at that point, if the equity is knocked you know, cooperating, then you start to pull back on the acquisition cadence. I'm just curious how you think about all scenarios.

And, obviously, if the risk off trade works, then great. We get a cost of equity. We keep moving. But just it trying to think about all scenarios here.

William Howard Lenehan: Yeah. I think we've evidenced that we're disciplined in our capital allocation. That we don't go out the risk spectrum on acquisitions You know, we don't provide guidance for a reason. But that said, we have lots of runway with very accretive acquisitions funded with low leverage, inexpensive financing that's readily available today. A way that it wasn't readily available a couple years ago. So I think we feel like we're in great shape and we have minimal maturities to address. So I think we have a long runway of acquisitions

Patrick L. Wernig: and

William Howard Lenehan: our stock has been soft

Joshua Zhang: And I think we

Patrick L. Wernig: as

William Howard Lenehan: Pat mentioned, added some detail in our presentation of how well supported by NAV we feel our stock price is. But I think it offers, you know, real value today.

Joshua Zhang: Got it. Thank you.

Patrick L. Wernig: Thank you.

Operator: Our next question comes from Anthony Paolone from JPMorgan.

Patrick L. Wernig: Can you talk about just Red Lobster exposure? Because I think that's another one that's been out there talking about perhaps more store closures.

William Howard Lenehan: Yeah. I don't think there's much to say. The brand is doing much, much better than it was under prior ownership. Our stores are predominantly in a master lease. It was affirmed when they restructured at the same rent. I think we feel quite good about that.

Joshua Zhang: Okay.

Patrick L. Wernig: And then on the diversification, strategy,

Anthony Paolone: can you maybe just talk about anything that you don't want to get into or other areas of interest that you haven't quite tapped yet?

Joshua Zhang: Yeah. I think

William Howard Lenehan: you know, we've been very clear. We have a page in our presentation of sectors that we have avoided. I would double down on what's on that page. We try to focus on a balanced real estate and credit approach and we try to stay within

Anthony Paolone: sectors

William Howard Lenehan: that have been through cycles. And so

John Kilichowski: know,

William Howard Lenehan: we don't own pickleball facilities that cost $20,000,000. We don't own $9,000,000 car washes. We don't own corporate headquarters in the middle of nowhere. Where

Patrick L. Wernig: you can get more spread

William Howard Lenehan: and it works typically for a while.

Anthony Paolone: But

William Howard Lenehan: on lease renewal, you'd have a lot of risk.

Joshua Zhang: So

William Howard Lenehan: I think we take a much more balanced approach than our peers and it's shown in the last decade that our credit performance has been best in class.

Anthony Paolone: K. Thanks.

Operator: Thank you. Our next question comes from Rich Hightower from Barclays. Your line is now open. Please go ahead.

Michael Goldsmith: Just wanted to follow-up on one of the earlier questions, you know, but what's the real

Patrick L. Wernig: level

Michael Goldsmith: with approaching that sort of six times upper limit on leverage if that's the only option the market gives you. Know, as far as executing the sort of plan for '26 on growth.

Anthony Paolone: But

William Howard Lenehan: I think that's a quite a bit of a ways off. So, you know, hard to make predictions that many months in the future you know, So I think we feel very good that we have you know, a couple $100,000,000 of acquisitions before we even have to be thinking about that. And, honestly, you know, we've had the same

Anthony Paolone: leverage

William Howard Lenehan: ceiling for since inception, we've essentially never been close to it. You know? So I think that track record speaks volumes.

Anthony Paolone: Alright. Fair enough.

Michael Goldsmith: And then as far as the, I guess, the that sort of early vintage of Darden leases coming due, '27. And I wonder if I've asked this before, but, you know, where do you guys sort of peg

John Kilichowski: the mark to market or the recapture rate potentially on those

Michael Goldsmith: you know, upon renewal, you know, that sort of thing?

William Howard Lenehan: They have multiple five year extension options. At one and a half percent growth, so the continuation of that one and a half percent escalator.

Anthony Paolone: So

William Howard Lenehan: I would say that our expectation is the vast majority of those will renew at the at the one and a half percent contractual option.

John Kilichowski: Got it. Thanks very much, Bill.

Anthony Paolone: Yep. Of course.

John Kilichowski: Thank you.

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

John Kilichowski: Just looking at your know, your valuation chart you put in the presentation. You have a lot of assets that will trade call it mid, low fives and up to the low sixes.

Joshua Zhang: Would you have any appetite to start disposing of some of those assets and recycling into a little bit higher yield and higher growth assets?

John Kilichowski: And get the diversification higher.

William Howard Lenehan: Yeah. It's always an option. Wes. We've done very little of it, you know, where we have done it. Frankly, was a number of years ago in selling you know, bomber breeze assets at extraordinary pricing. The very high rents. We haven't had to do it in the past. We don't have to do it today. The Darden assets are very, very high quality and very hard to you know, replace. They trade for you know, strong values for a reason. Darden as a company has, you know, $25,000,000,000 market cap. It's credit default swaps.

Anthony Paolone: You know?

William Howard Lenehan: Are like a g seven country. So they're hard to they're hard to let go of, to be honest. It's an option. We know how that works. You know, I would remind everyone that there are read rules You can't just sell properties one by one. Like some people assume you can.

Anthony Paolone: But

William Howard Lenehan: it's an option. We haven't had to do it yet. Nothing wrong with the hasn't the primer.

Anthony Paolone: Okay. And then you did have a rare impairment in the quarter. What drove that?

William Howard Lenehan: It was a quick service restaurant that we purchased right at the beginning of our life. It was a Hardee's in Gladstone, Alabama. We've had a hard time releasing it. It's a tiny property. It's kinda hard to write down properties, to be honest. We found that the conditions were right to do it, but it's been vacant for a while and had a hard time releasing it. But you know, one property over 1,325.

Anthony Paolone: Yeah. Not bad. And one last one on the Red Lobster. I think you mentioned there were ground leases Is that for all of them? And can you share the rent level? They're they're mass

William Howard Lenehan: leased. And, again, they were just reaffirmed. So I would say there's been a tremendous emphasis on credit issues that aren't credit issues in the q and a. And I would ask listeners to sort of see the forest for the trees. The story here is that we have substantial growth in 2026.

Anthony Paolone: That'll be really accretive. Thanks for the time.

Patrick L. Wernig: Thank you.

Operator: Next question comes from Mitchell Bradley Germain from Citizens Bank. Your line is now open. Please go ahead.

Patrick L. Wernig: Thank you. I think, Bill, you talked a little bit about know, obviously, ticket for a grocer. I'm I'm curious how you know, do you potentially look to maybe scale up in that sort of sector?

Michael Goldsmith: Yeah. I think it's very similar, Mitch.

William Howard Lenehan: To how we looked at medical retail and auto service. You know, we spend a lot of time doing research upfront. You know, we're we're conservative in what we purchase. And then as we

Anthony Paolone: are active in the market,

William Howard Lenehan: it helps with seeing deals, and you get more deal flow. So it's it's no different than what we've done in the past, to be honest. It's just the attributes of different property types you need to be, you know, sensitive to. And I think because we've been cautious and you know, you've seen the positive results on our credit results.

Patrick L. Wernig: And do you envision doing direct deals with grocers or maybe leveraging some of your shopping center

John Kilichowski: contacts to Yeah. Absolutely. Kinda scale it up.

William Howard Lenehan: It's all it's all of the above, Mitch. We take a pretty agnostic view on sourcing. So we source things directly. You know, in auto service, we've had a number of brands that we've had repeat sale leaseback business. But we will look at, you know, we'll look at everything that we can.

Michael Goldsmith: Gotcha. And last one for me is anything not hitting the strike zone today?

Patrick L. Wernig: In terms of where you've been allocating capital? Like, are you pulling back in any way at all, or it's all as long as it continues to meet your underwriting criteria, all systems go?

Anthony Paolone: Yeah. I think it's the latter.

William Howard Lenehan: You know, we've been pretty you know, thoughtful in what we've acquired, and we don't tend to have a view of buy it And if the performance starts declining, you know, we'll be able to sell it at a great price you know, That hasn't been the way we've looked at the world. You know, we've proven things in the past, but it's been minimal. And I think it reflects what we've purchased. We feel really good about

Patrick L. Wernig: Thank you. Good luck this year.

Anthony Paolone: Thanks.

John Kilichowski: Thank you.

Operator: Our next question comes from James Kammert from Evercore ISI.

Patrick L. Wernig: Thank you very much. Perhaps a derivative of where Mitch was heading

Michael Goldsmith: Could you remind me what is the percentage of dollars over the past couple of years that really were direct deals with developers we didn't have a broker involved because I'm presuming that the former gives you a better yield

Patrick L. Wernig: I'm just curious how that's been playing out. Proportionately.

William Howard Lenehan: Yeah. I don't think I wouldn't look at it that way, Jim. I think that the returns are pretty similar. You know, sophisticated large brands have access to information They know what their properties paid for. You know, there are some ease of use when you do repeat transactions in the sale leaseback because often you have existing documents that you can replace or you know the people are and, you know, the sort of cadence of information flow can be better.

Joshua Zhang: But

William Howard Lenehan: I don't think that there's a you know, some meaningful advantage of doing originated sale leaseback.

Michael Goldsmith: Got it. I appreciate that. Not to work against them in any way.

William Howard Lenehan: But I don't think I don't think that there's a big difference.

Patrick L. Wernig: Marcus triggered it out. Fair enough. Thanks. Thank you.

Operator: As a reminder to ask a question, We currently have no further questions. So I'd like to hand back to William Howard Lenehan for any closing remarks.

William Howard Lenehan: Thank you, Claire. For 2026, we're in the fortunate position of being able to use very economical long term debt to fund new investments. We see ample external acquisition opportunities. And based on cap rates today, we expect healthy investment spreads and growth for the year. I'd emphasize that in this environment, we do not anticipate slowing down given our dry powder and where we are seeing our cost of debt capital. Our team will be on the road for some non deal roadshows in Los Angeles and Chicago the weeks of March 10 and March 17, respectively. We'd love to meet with you in person, so please reach out to Patrick or myself to coordinate.

Thank you all, and look forward to seeing many of you in person this year.

Operator: Thank you. This now concludes today's call. Thank you all for joining. You may now disconnect your lines.

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. Parts of this article were created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.