Good morning, ladies and gentlemen, and welcome to the FrontView REIT, Inc. Q4 2024 Earnings Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] This call is being recorded on Thursday, March 20, 2025. I would now like to turn the conference over to Tim Dieffenbacher, CFO. Please go ahead.

Good morning, everyone, and welcome to our year-end earnings call. I'm joined today by Stephen Preston, Chairman, Co-CEO, and Co-President; and Randy Starr, Co-CEO and Co-President. Before I turn it over to Steve, please note that we will make certain statements that may be considered forward-looking statements under federal securities law. Company's actual results may differ significantly from the matters discussed in these forward-looking statements, and we may not release revisions to these forward-looking statements in the future. Factors and risks that could cause actual results to differ materially from expectations are disclosed from time to time in greater detail in the company's filings with the SEC and in yesterday's press release. With that, I'll turn it over to Steve.

Great. Thank you, Tim. Good morning, everyone. Welcome to FrontView's Q4 2024 earnings call. We are excited to review our first quarter as a public company after our IPO in October of 2024. As a reminder, FrontView is an internally managed net lease REIT that acquires, owns, and manages properties with frontage on high traffic roads that are highly visible to consumers. Over the last two quarters, we have demonstrated our ability to accretively grow the portfolio. During Q4 2024, we acquired $103.4 million of properties at an average cap rate of 7.93%, and a weighted average lease term of 11 years. So far, in Q1 2025, we have closed on $37.9 million of property at an average cap rate of 7.8%, and have an additional $18.2 million under contract at an average cap rate of 8.25%. As previously mentioned, we expect to close approximately $50 million of acquisitions during Q1 '25. Although we previously guided to a Q1 '25 cap rate of 7.5%, we expect to close these assets at an approximately 7.9% to 7.95% average cap rate, exceeding prior guidance by about 40 to 45 basis points, as we are sourcing more accretively than expected, as the marketplace continued to remain slightly imbalanced. As we look forward to the rest of 2025, we are still quite pleased with our ability to acquire at above-market cap rates, a testament to our buyer approach and ability to demonstrate surety of close in a fragmented marketplace. Although we have seen a slight tightening in the marketplace at this time, through the second quarter of 2025, we still believe we will acquire above the 7.5% cap rate mark. As we get into the second half of the year, there could be additional tightening if more capital opens up, and debt financing for…

Thanks, Steve. I'll begin by discussing our finance results for the quarter, followed by an overview of our capital markets activities and our guidance for 2025. In 2024, we reported AFFO per share of 0.33, in line with our guidance. The quarter benefited from our 3.4% fixed rate ABS notes, maximizing AFFO dollars and allowing us to return more cash to shareholders in the form of dividends. As we highlighted in our earnings release and in prior releases, we repaid the ABS notes in full on December 30th. On a proforma basis, assuming the repayment of these fixed rate notes at the beginning of the quarter, AFFO per share would have been $0.27, which, as we've highlighted on previous calls, an appropriate basis for reflecting future growth expectations. Our G&A and property leakage figures came in better than expected, reflecting our conservative views to minimize surprises as we season as a publicly traded REIT. We are extremely pleased with our acquisition volumes in the quarter at above market cap rates. Thanks to our ability to capitalize on our niche market. We expect these to contribute significantly to 2025 growth rates. We have recognized approximately 200 basis points of bad debt during the quarter, all on watch list properties, which we view as a short term impact to AFFO that we anticipate resolving during 2025. We concluded the year with a net debt ratio 5.2 times, underscoring our prudent approach to leverage and a robust balance sheet. In terms of capital markets activities, fourth quarter was pivotal for us. The IPO capital enabled us to retire legacy debt and establish a more flexible capital structure. As we've mentioned before, we secured a new $250 million revolving credit facility and a $200 million term loa, both on favorable terms. This enhanced financial…

Thanks, Tim. Let me leave you all with a comment as we continue to build this company going forward. We are always going to use our best judgment to try to make the right decisions for our shareholders to maximize long term value for the company. We've demonstrated our ability to provide outsized growth by exploiting our market niche with prudent capital allocation. We decided to take a chunk of interest rate risk off the table to fix $200 million of debt, the SOFR spread of 3.66%. We are quickly and effectively addressing our current watch list. With that, I will turn it back to the operator for the Q&A portion of our call today.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] The first question comes from Ronald Kamdem at Morgan Stanley. Please go ahead.

Hey, just two quick ones for me. One, I just want to talk a little bit more about the acquisition pipeline, obviously, over $100 million 4Q, some deals at the end of the quarter. I think I heard you say you could continue to get sort of above market sort of cap rates, which is very impressive. Just can you talk a little bit more about sort of the activity, cap rate trends, what industries are you leaning into? I just love to hear more about the pipeline.

Sure. Hey, Ronald. How are you doing? I'm Randy Starr. Thanks for tuning in to us and happy to discuss the pipeline, which continues to be very robust. We continue to acquire on average in the high sevens from a cap rate standpoint, given the current market conditions, but also given our market niche and what we would call our entrepreneurial approach to sourcing new acquisitions, which creates pricing arbitrage. From a tenant niche standpoint, we are targeting strong credit, proven operators and essential services, health and wellness, and we are purposely avoiding casual dining and pharmacy as Steve alluded to earlier. We're also very cautious, I would say, about car washes at this time, given the oversaturation of the market. So the specific sectors which we've acquired within include medical, dental, veterinary services, automotive services, convenience stores, fitness, finance, as well as a couple of Dollar Tree stores that met our frontage traffic and real estate criteria. Out of the 29 properties acquired in Q4, only two were technically franchisees and the rest were company-operated stores. And I think importantly, we have also received financials, if you include the publicly traded companies, for 98% of new acquisitions since the IPO. And from a cap rate standpoint, as Steve mentioned, cap rates remain fairly consistent in the private investor market where we saw them, really where we saw them too in Q4. Should the Fed, I think, recommence rate cuts, we would expect cap rates to adjust slightly downward. We are seeing those slight tightening overall in the institutional space, especially for widely marketed deals from the national brokerage firms. But as a reminder, our market niche is working with the many smaller and mid-sized brokerage firms across the country that specialize in smaller transactions, usually dominated by the private buyers.

My second question was just on sort of the tenant health. I mean, I think I saw the occupancy was down quarter to quarter. I'm assuming that's some of the store closings and so forth. When you think about the guidance for this year, for the bad debt, I guess is that addresses most of the stuff for this year? Like how do we think about this year versus like a historical year and the amount of time before you sort of get through all of these closures and resolutions and so forth? So just a little color on the tenant health and the bad debt guidance this year versus what we should expect in a regular run rate year.

Yeah. Thanks, Ron. It's Tim. So historically, I would have looked at bad debt expectations around that 1% to 2% range. Obviously, this quarter end and in Q1, a lot of these tenants had hit fairly unexpectedly and not what we expect on a go forward basis. So guidance for the year is to have bad debt in that 2% to 3% range. The vast majority of that relates to those tenants that Steve had highlighted on the call with a little bit of buffer for one, maybe two tenants to to have some difficulties during the year, but we expect that once we're through this slug of tenants that will return to normalcy. So we're looking forward to -- we think that at the end of 2025, vast majority of these will come back online. So we're excited about that, but obviously, understand that there's a little bit of headwinds that we have to face in the near term.

The next question comes from John Kilichowski at Wells Fargo. Please go ahead.

Maybe if I could just kind of go back to the last question, I was hoping we can kind of drill into the most recent press release on the names and the vacancies and kind of timing. And then Tim, maybe if you could just expand upon the last point you made, the bad debt guidance. I'd love to know out of those assets that went dark in the first quarter, what's included and what's that buffer room that you're leaving for yourself on the bad debt side for names that weren't included in the press release?

Sure. Yeah, thanks. So let me just touch base quickly on sort of where we sit and what we think from a timing standpoint and ultimately, we want to be conservative with the projections. But we're currently in negotiations with six different users for 12 of those assets. And we've got two that are LOI sales. We've got one that is a lease that's being negotiated. And then we also have three, that are currently under contract. The three just for context. If the three assets that are currently under contract move to close and we receive those proceeds and reinvest those proceeds, we're expecting a little over 30-plus%, maybe 32%, 34% of the 4% of ABR to come back a line just with those three alone. So I think we see some very good opportunity to bring back these assets and then to bring them back at very meaningful recovery rates. And if you look at, we're sort of right in line, but if you look at adding the two LOI sales and the one lease, we're looking at close to 50, if not more, percent of that lost rent coming back online. So we feel like we're in a good place addressing it very quickly. And again, I think it's a testament to not only the team, but the team has deep-rooted experience in the real estate space. And this is not something that, we're not able to do an execute on. And the assets themselves, help make the team look a little bit better when you're taking properties back.

And John just kind of touched on the kind of progression from Q4 and Q1. So just kind of referencing Steve's 4% of ABR, you have essentially a stratification, 2% that occurred in Q4, and then those were out of ABR, and then another 2% that occurs in Q1 of '25. And so when you think relative to the guidance range that we put out for bad debt of 2% to 3%, it's essentially incremental 25 to 50 basis points of bad debt that we have in our guidance.

And then Steve, just kind of on those newer updates in terms of the releasing time, how much of that is included in guidance? I don't know when you've had those conversations with those tenants about potentially releasing, but maybe if you hit the high end of that, would that be above and beyond maybe what your current guide includes? Or is that roughly at the high end of guide?

Yeah. So what I would say is we're trying to be pretty conservative with the timing of when these assets could come back online. And we're estimating for the purposes of, our guidance that we're pushing a lot of that back into the later part of 2025. And if, for example, these three contracts that we're talking about that would be pretty substantial for three of these 12 assets come back, the expectation, if they all continue to make, they'd be coming back online well before the end of the half year. So I think we've got some navigation there that can help us if the leasing continues to go at the pace.

The next question comes from Daniel Guglielmo at Capital One Security. Please go ahead.

On the acquisition side, how does the underwriting for the new leases compare with the in-place lease portfolio? Looks like the lease terms are longer, but are the yearly escalators still in that 1.7% to 2% range? And are most of them full of triple net coverage?

Yeah, I would say that the rental increases are consistent with where we've been historically in between 1.5% to 2%. And I would say that from a credit standpoint, I think we're very pleased. As I mentioned, I think Steve mentioned, about 95% are corporate credits. We've been receiving financials literally for almost 100%, about 98%. It is a mix of absolute net, and we would technically call it double net, where the landlord may have limited responsibilities, such as roof or structure. But the leases are typical for what you'd see in the out-parcel net lease space.

And then I know you all have great standing relationships with the brokers and are very plugged in there. Can you just give us a sense of who the primary sellers of properties are right now?

Yeah, so that's a great question. Glad you asked that. We continue to see a lot of motivated sellers in the private investor market space, and these typically are individual sellers, at least in the market that we compete in. The traditional REIT market, sometimes they're buying from other institutions who have major portfolios that they're trying to divest of, but that's not where we compete. And we're actually seeing, which is helping us, less buyers in our specific competitive landscape currently. The traditional supply of 1031 exchange buyers has decreased slightly compared to years past, due in large part to the sustained high interest rates. And traditional bank financing is often difficult for the smaller private buyer. That really creates pricing opportunities for an institutional quality buyer like FrontView that can execute and close quickly and reliably. But we also continue to acquire properties that we lost, technically, quote, unquote, lost the first time around when we were looking at them due to pricing, but where the buyer who was originally chosen was not able to perform. And now that puts FrontView back in the driver's seat and that puts us in a very favorable position from a pricing arbitrage standpoint. So I would say the majority of sellers we're seeing are private sellers, and many of them have distress in other parts of the portfolio. And the market uncertainty now with the political climate obviously isn't helping in a lot of people's psyches. So that puts us into some very favorable situations on the pipeline.

[Operator Instructions] The next question comes from Anthony Paolone at J.P. Morgan. Please go ahead.

You guys have Nahum on for Tony this morning. I guess my first question, I guess given the current cost of equity for you guys, what's the runway or how far are you guys willing to push your leverage to pursue accretive acquisitions?

Yeah. Hey, Nahum[ph], how are you? So I'll take that. Obviously, where are the share price is today and what that implies from a cost of equity perspective, it's not great. What I would say is we monitor our costs every day with the share price fluctuations. On the roadshow past conference calls, we've discussed that our ideal leverage profile is 6 times net debt to EBITDA over time, which may mean that we could go above 6 times. We could be below 6 times. And so we just given the current share price, we're not racing towards any equity offerings at this point in time, but we do have and we do feel that we have enough runway to get through the year and get us into the beginning of next year while staying in the 6 times range. What I would say relative to our costs with just looking at our guidance range of $1.20 to $1.26, $1.23 at the applied midpoint, if you look at our weighted average cost of equity, it's not very conducive to an equity offering today, but we're not far away from having 75 basis points to 100 basis points of accretion, which is really where we target from a spread investing perspective. So we're very confident with these tenant related issues. I think if you look at the implied cap rate that we're trading at right now around a 9%, I think we would all agree that that's not characteristic of the true underlying value of the portfolio. And so we're excited to put some of these tenant related things behind us and hopefully have some share price adjustments, but we feel we have plenty of runway to execute this year. And as we've said in the past, we're certainly very sensitive to the share price. And if some of these share price headwinds continue, we have levers that we can pull, which includes peeling back on our acquisition activity to make sure that we continue to have enough liquidity and runway and to continue to prudently allocate capital.

And last one for me, it looks like the expected G&A costs for the year are just a little higher than what was previously expected. I guess, is that adding, is that from adding people to like the acquisitions team or just, I guess, other ancillary costs?

Yeah, no, thanks for the question. Has absolutely no impact from additional headcount related matters. We stand by our previous sentence there that we think we're a platform that's poised to grow with the existing infrastructure. We may add a few lower level positions, such as a property manager, accountant, things like that, but no significant hires. The uptick that you're seeing in that G&A guidance is really just a holistic view of all of the costs of running a publicly traded company. And so that's the primary driver.

The next question is a follow-up from Ronald Kamdem at Morgan Stanley. Please go ahead.

Hey, just a quick one. I want to make sure I understood it correctly. So just how many vacant boxes are you, do you have and that you plan to open by the end of the year? And I guess the question is just, if you're still in lease negotiations, isn't that kind of fast, right? What gives you confidence that you can get those open by the end of the year? Hopefully that made sense.

Yeah, sure, of course. Yeah, we're right now in lease negotiations on one of the assets and the remaining are sales. Sales typically come back online a little bit quicker and we think that's going to be a balance going forward with these 12 assets. So thus far, we've got a little bit more of a preponderance on the sale side. The leases typically will take, based on sort of fixturing periods and lease negotiations and permitting periods, they can extend out a little bit longer, certainly than the sales. So we expect that we'll have a little bit more on the sales side for the back six that are in discussions. And a lot of those are discussions on the sales side as well.

We have no further questions. I will turn the call back over to Stephen Preston for closing comments.

Okay, thank you all again for your support in FrontView. We look forward certainly to seeing everyone very soon and wherever you're going, please make sure you go in health and safety. Take care, thank you all.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.