Good day, and welcome to the Four Corners Property Trust Third Quarter 2016 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Gerry Morgan, Chief Financial Officer. Please go ahead.

Thank you, Nicole. Joining me on the call today is Bill Lenehan, our CEO. During the course of this call we will make forward-looking statements, which are based on beliefs and assumptions made by us and information currently available to us. Our actual results will be affected by known and unknown risks, uncertainties, and 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 of our potential risks, please refer to the SEC filings, which can be found on the IR section of our website. All of the information presented on this call is current as of today, November 3, 2016. In addition, reconciliation to non-GAAP financial measures presented on this call such as funds from operation and AFFO can be found in the Company’s supplemental report, which also can be obtained on the IR section of our website. With that, I’ll turn the call over to Bill.

Thank you, Gerry. I wanted to start off with some thoughts on the acquisition environment. Cap rates appear to be basically flat since last quarter’s call. Competition for transactions, especially the small portfolios and one-off deals that we typically look at continues to be primarily from 1031 exchange buyers. We have not seen any change in the property market despite the recent change in the tenure and the REIT valuations. We are following this dynamic closely. Specific to FCPT, we are really pleased with how our acquisition process is working. From the strong contribution of Pat and Josh, to the awareness we have developed in the franchisee community and amongst net lease brokers, to a very booked schedule at the annual Restaurant Finance and Development Conference in a few weeks, we are excited where we are one year into it. Updated totals for 2016 year-to-date acquisition announcements today include 22 restaurants purchased for $37.2 million with a 17-year average lease term and going in cap rates between 6.5% and 7.2%. Please remember these transactions were originated over the late spring and summer and are following the normal deal process to closing. It is fortunate we have closed a couple sale leasebacks to date, which amounted to 57% of the total acquisition volume thus far. As we recently announced, we have successfully sold two properties, an Olive Garden and Bahama Breeze in Florida, generating $25 million in proceeds at a 4.75% cash cap rate. I think the key takeaways from these sales are as follows: We are willing to sell and exchange properties via the 1031 exchange market when we can obtain strong pricing. Recycling of 1031 proceeds from these sales began less than one week after closing and that overall we focus on NAV as well as AFFO growth. Going forward, we are very pleased with the pipeline both in terms of quantity, but most importantly quality and consistency with our strategies. Operationally, we are on strong footing, and I am very pleased with how the business itself is running. With that, I’ll turn it over to you, Gerry.

Thank you, Bill. A couple of comments on our financial results. Cash rental income for the portfolio of the initial 418 properties leased to Darden and the 16 properties acquired during the third quarter was $23.8 million for the quarter after excluding noncash straight line rental adjustments. Cash rents on 100% of the 418 properties leased to Darden increased 1.5% on November 1st for the months of November and going forward, representing an increase on the annual cash rents received from Darden from $94.4 million to $95.8 million. Our industry-leading EBITDAR to rent coverage on the portfolio remained at 4.2 times in the third quarter. Cash interest expense was unchanged in Q3 from prior quarters given we are fully hedged on our $400 million term facility and did not begin borrowing on the $350 million revolver to fund acquisitions until early in the fourth quarter. The Company’s net debt-to-EBITDA in Q3 was 4.3 times, comfortably below our long-term stated range of 5.5 to 6 times net debt-to-EBITDA. With respect to our cash general and administrative expenses, we continue to feel comfortable with approximately a $10 million target for 2016 after excluding noncash stock compensation and acquisition-related costs. As we now are approaching our first year anniversary as an SEC reporting entity at the end of November, we expect to file an S3 registration statement to include an at-the-market or ATM equity issuance program. We believe our smaller and more frequent typical acquisition size meshes well with an ATM program, which represents a cost-effective method to raise equity, we believe, for the Company. Finally, a reminder to everyone that we are not providing guidance on acquisition levels or FFO and AFFO for the year or for 2017, which is highly dependent on acquisition levels; however, we are reconfirming our expectations that the initial portfolio will produce approximately $1.18 to $1.19 in AFFO per share, consistent with our prior filings, and that AFFO per share could increase nominally above this level based on the pace of Q4 acquisition activity, which should be accretive to AFFO. With that, Nicole, let’s turn it over to you for questions.

Thank you. We will now begin the question-and-answer session. To ask a question, you may press star (*) then one (1) on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star (*) then two (2). Our first question comes from Collin Mings of Raymond James. Please go ahead.

Thanks. Hey Bill, hey Gerry.

Hey Collin.

Ah, first question for me, just, can you provide us an update on the possibility of one or more OP unit transactions as it relates to the current acquisition pipeline you’re working through?

Ah, stay tuned. It’s “stay tuned.”

Fair enough. Um, and then as you think about the two asset sales here and in Florida, I mean, you indicated in the press release that those were completed following really an unsolicited offer. Any other potential asset sales in the works that you can talk about, that could close before year end?

None in the works at this point. We do receive reverse inquiry constantly on our assets, but we tend to be very selective in doing that, both to time purchases with 1031 exchange sales but also because the assets in our existing portfolio are very high quality, have very strong performance, and so it’s very difficult to replace that quality of income. But, when the right deal comes around, we’re willing to act on it.

Okay. And then just in context of some of the broader concerns out there about restaurants recently, can you just update me with what you’re hearing from now your tenants or your prospective tenants that you’re having some conversations with some of the franchisees out there?

I think Darden’s doing quite well. Our San Antonio business is running quite efficiently, especially given the softness in Texas overall. But certainly some of the lower quality brands have had credit issues. I think it just reaffirms our strategy to stay with the safer brands and not venture too far out the risk curve. But certainly, the summer was soft, but in the kind of assets we look at, the brands are performing quite well.

Okay. And then just one last one for me. Just as you think about the G&A, I think a little different from what we modeled for the quarter, but just as you look forward can you speak to the ability to leverage the current team and anything you might change on that front as far as either new hires or anything else as we think about the G&A? Thanks.

Yeah, I mean, I think our consistent message has been cash G&A of $10 million, which we reaffirmed today, and then adding to that noncash comp, which is certainly a real expense, but it fluctuates depending on a relative performance to a benchmark of other net lease companies, so that’s something that we can’t control and makes it difficult to forecast. It’s a real expense but it’s hard to model. And then transaction costs, which occur when we buy things and because we don’t provide acquisition guidance derivatively we don’t provide transaction cost guidance. So that we feel like is perfectly in line with what we’ve communicated. Going forward, we’ll see where next year comes. We probably will add a few people, but overall I wouldn’t expect the cost to be significant, certainly in the context of the Company. We do think there are some efficiencies that we can drive in our G&A. They are, again, very minor. And lastly, you know this was our first year of operations. There were some extra costs, you know, essentially startup costs that again weren’t very large but they hopefully won’t be recurring. So, I would expect a largely consistent G&A line, maybe increasing ever so slightly. But you know, overall, Collin, I think our ethos here is that you can do more with less. We have probably the lowest number of people in the industry in home office, and the lowest cash expense, and we think we can continue that.

Thanks, Bill. I’ll turn it over.

Our next question comes from R.J. Milligan with Baird. Please go ahead.

Hey guys.

Hey R.J.

Bill, so you guys have been doing this for a year now and I’m curious what your thoughts are in terms of portfolio diversification. Has your philosophy changed over the past year? Is that still a goal of yours, and what is meaningful diversification and how long do you think it takes to get there?

Sure. No, I don’t think our thought process has changed. You know, I think it’s very clear that our existing portfolio is of extremely high quality and so we definitely want to diversify it. That’s why we built a team to make acquisitions. The sales also obviously help diversification; you get to work with both sides of the fraction. You know, I think we’ve pretty consistently said we’re not doing this to take Darden exposure from 99% to 90%, we’re doing it to truly create a diversified portfolio and that will take a few years to do. But we want to make sure that when we get there, we’re really happy with the assets we’ve purchased. So I think really very little has changed in that outlook.

Is there a targeted volume of acquisitions that you’d like to make over the next say three years to get to a different diversification level?

You know, we have a significant capacity to do sensible transactions. So, to the extent that we can do sensible transactions, we have a significant appetite. But, we don’t set, either for comp purposes or internal planning purposes or communicating to our investors, a stated number per annum. The market’s too fluid to do that sensibly, in my view.

Speaking of sensible deals, you know, the deals that you guys have closed year-to-date, obviously a lot of competition in the 1031 market. How are you, I guess, avoiding the overheated 1031 market in the deals that you’re doing?

Sure. We turn over a lot of rocks. So we’ve looked at over 2000 transactions this year-to-date, and we have a very streamlined ability to model them, and as I mentioned in the call, we’ve done some originated sale leasebacks, that’s where we close the day the franchisee is buying the business, most typically, and where our scale helps. But, it’s a competitive market and we try to be selective, and I think that that’s more important than hitting our official contrived number of acquisition guidance.

All right, thanks guys.

Thanks R.J.

Our next question comes from Mitch Germain of JMP Securities. Please go ahead.

Good afternoon. How are you?

Hey Mitch.

Just curious underwriting philosophy, Bill. You know, 2000 transactions that you’ve looked at? I know every deal is different and distinct, but maybe kind of, you know, order of importance. Is it customer, is it lease term, is it location, is it coverage? I mean, how do you weigh all of them when you’re underwriting these transactions?

Sure. First step is, you know, strategic value. Obviously if it’s not a restaurant, it drops off at that point. And then we just look at, for example, a steakhouse in Atlanta would have less strategic value to us than a quick service restaurant in Utah, because we already have a number of steakhouses in the Georgia market. So then from there it’s roughly split 50-50 between credit metrics, things like guarantor credit, and durability of the brand in question. And then 50% real estate vestings like lease term, or lease growth rate, things related to rent, etcetera. So without, you know, giving away trade secrets, we have a scorecard that is roughly predicated on a 50-50 balance between credit and real estate.

Gotcha. And then maybe just kind of split between the deals that you’ve announced so far as to direct versus fully marketed?

I think that the way most people would define it, most of these transactions have been direct. But in today’s market, people are sophisticated. Usually there’s a broker involved in some aspect of many of these transactions, so I think if you were to calculate a percentage, it would be very high “direct”, but I think, I don’t put a ton of differentiation in that, not nearly as much as some of our competitors do.

Right. Congrats on a fantastic first year.

Great. Thanks, Mitch. Appreciate it.

Our next question comes from Daniel Donlan of Ladenburg Thalmann. Please go ahead.

It’s actually Mitch Germain on for Dan. Just quickly, when you look at the two Darden properties you sold in the fourth quarter, where were they on a quality basis compared to the rest of the Darden portfolio, maybe from like an EBITDAR coverage basis, and also just in general?

They were very high quality, both in terms of performance, location. Florida is a good market for net lease generally. They are, you know, all of our properties are in very good physical condition and are well located, but they were very good properties.

But you wouldn’t expect like a randomly selected Darden asset in your portfolio to sell at the same kind of cash cap rate that those properties sold at.

No, I would not.

Okay.

I think it would be slightly higher.

Okay. And then from an acquisition basis, everything you’ve bought so far has been, is operated by franchisees. Is there any opportunity, you think, to acquire corporate-owned assets, or are those just too costly given the strength of the 1031 market and the appeal of a corporate credit?

Ah, you know what, we certainly looked at a number of corporate deals. I wouldn’t read too much into these initial transactions from that perspective. We certainly will be acquiring corporately operated stores in the near term.

Okay. Understood. Is there any kind of spread on a cap rate basis between corporate versus franchisee assets?

Not when properly adjusted for credit.

Okay. Just thought I’d ask. Okay. Um, that’s it for me.

[Operator Instructions]. Our next question comes from Jason Moment of Route One Investment Company. Please go ahead.

Thanks, Bill. Congratulations on a great quarter.

Appreciate it.

I had an opportunity to stop by the Stonestown Galleria Olive Garden the other night and tried out the new breadstick sandwich, which was, I thought phenomenal and was very tasty and a good price point. And I noticed there’s been a lot of marketing push on their website, and my question is have you factored that into your prospective guidance as far as traffic at your stores in the following year?

Sure. I would just point out that the Stonestown Galleria property is not one of the properties in the Four Corners Property Trust portfolio. Thank you for the question. Operator, any more questions?

We have no questions at this time. End of Q&A

Excellent. Since we’re getting close to the 20-minute mark here, I wanted to thank everyone for joining the call. Look forward to the future. We’re very excited. Thank you.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.