FrontView REIT, Inc. (FVR) Earnings Call Transcript

Thank you. Hello everyone. Thank you for joining us and welcome to the Front View second quarter 2026 earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Pierre Revol, CFO. Pierre, please go ahead.

Thank you, Operator, and thank you everyone for joining us for Frontview's second quarter 2026 earnings call. I will be joined on the call by Steve Preston, Chairman and CEO. Before we get started, I would like to remind everyone that this presentation contains forward-looking statements. Although we believe these forward-looking are based on reasonable assumptions, they are subject to known and unknown risk and uncertainties that can cause actual results to differ materially from those currently anticipated due to several factors. I refer you to the Safe Harbor Statement and our most recent filings with the SEC for a detailed discussion of the risk factors relating to these forward-looking statements. This presentation also contains certain non-GAAP financial metrics. Reconciliation of non-GAAP financial metrics to most directly comparable GAAP metrics are included in the exhibits furnished to the SEC under Form 8K, which include our earnings release, supplemental, and investor presentation. These materials are available on the investment relations page of our company's website. With that, I am now pleased to introduce Steve Preston. Steve?.

Great. Thank you, Pierre, and good morning, everyone. This quarter demonstrates why the best risk-adjusted returns in net lease come from owning exceptional real estate with a diverse tenant base in vibrant markets, where the strength of the real estate leads to increases in rents and value over time. Nearly 80 percent of our properties are located in top 100 MSAs. 92 percent are positioned near shopping centers. The average five-mile population exceeds 172,000, and the median placer AI ranking is in the top third of their respective concepts. Our portfolio is exceptionally well diversified, with the largest tenant now representing only 2.6% of AVR and the top 10 tenants accounting for just 20.2%. In addition, 33.6% of our rents are derived from investment grade tenants. Our median box is 5,000 square feet and our median annual rent is only 174,000 per property. We often describe our portfolio as containing fungible buildings with replaceable rents. While those phrases can sound abstract, the following examples illustrate exactly what we mean. Recently, we created a Bank of America ground lease in front of our Walmart in Rochester, New York. We converted a former Burger King franchisee to a Chipotle at our property in Mechanicsville, Virginia. We replaced a Miller's Ale House with a Raising Cane's Ground Lease at our property in Chicago, We released a former tricolor location to Avis in Marietta, Georgia. we created a Panda Express and Jangers ground lease from a former single twin piece in Winston-Salem, North Carolina. And we replaced a former Walgreens with an Amazon fulfillment center in Durham, North Carolina. In aggregate, these transactions generated 1.6 million in ABR with an estimated value of 29 million, compared to our basis of 19.8 million, or a 47% increase in value. Importantly, this value was created from assets that were underperforming, but where the exceptional quality of the underlying real estate allowed us to unlock significant value. Although none of this value creation has been crystallized through actual property sales, the improved tenant credit, lease structures, and real estate configurations have meaningly increased their market value. We've also optimized the portfolio through a disciplined and proactive disposition strategy. Every disposition serves one of three objectives. First, to enhance real estate quality. Second, to increase diversification. And finally, to recycle capital into better opportunities. Since our IPO, we have strategically sold approximately 110.5 million of properties, representing 14.6% of our original IPO assets to increase tenant and industry diversification, reduce exposure to tertiary locations, and remove weaker or tired concepts. The median disposition cap rate across all these sales, which were not our best assets by any means, was 6.88%, which is below our currently implied valuation. This quarter we sold five teritiary Dollar trees, a Friendly's in New York, a Staples in Illinois, fast-paced in Indiana and a Hooters in Kentucky at a weighted average 7.12% cash cap rate. Each transaction improved the overall real estate quality, tenant credit, or diversification of the portfolio. Continual portfolio optimization is part of our business model, and we will continue to proactively prune the portfolio as part of our ongoing value creation strategy. While the bulk of our portfolio optimization is complete, we will remain active in recycling capital where we see opportunities to enhance portfolio quality. The result is a portfolio with strong operators, exceptional real estate, and one of the most diversified tenant bases in the net lease sector. Importantly, investors can evaluate the portfolio directly, as we are the only net lease REIT that discloses 100% of its ABR by tenant and the address of each and every property. Turning to acquisitions, we acquired 17 properties for $58.2 million at an average cash cap rate of 7.34% and a weighted average lease term of 7.3 years for the quarter. These acquisitions were consistent with the real estate characteristics we target across the portfolio with median metrics, including a purchase price of $2.6 million. building size of 5,700 square feet, PLACER AI score of 20.4, annual rent of 217,000 per property, and five mile population of 141,000. We continue to target larger MSAs with an emphasis on established, well populated growth markets. While cap rates in these markets have historically been somewhat lower than the US average, we believe the premium is justified by strong demographics, favorable supply and demand dynamics and greater long-term rental growth prospects. The weighted average lease term this quarter was slightly below our historical average because we purposefully acquired several properties with shorter remaining lease terms. These assets have below market rents, strong tenant performance, and clear opportunities to create value through lease renewals or extensions. Our market knowledge and relationships allowed us to acquire them at prices well below their longer term intrinsic value. We view these select transactions as a form of risk mitigated development. They can provide development-like spreads without requiring us to assume construction, lease up, or entitlement risk because the tenants are already open, operating, and paying rent. As an example, we acquired a veterinarian clinic backed by a national guarantor in Indiana with a little more than two years left under the lease at an 8.75% cap rate. The cap rate was reflective of the short term remaining, but through our relationship with the tenant, we are extending the term to 12 years without providing any significant concessions, creating a wide development-like spread with zero development or construction risk. extension this alone would have raised our walled-on acquisitions from 7.3 years to 7.7 years Consistent with prior quarters, we are highlighting one acquisition this quarter. a corporately guaranteed Aspen Dental property in Roseville, Michigan, which is on the cover of our investor presentation. The property is located on a hard corner out parcel to a Kroger supermarket with frontage along a major arterial carrying over 25,000 vehicles per day. It also ranks in the top 15 of its concepts statewide based on Placer AI. Roseville is a suburb of the Detroit metropolitan area, the 14th largest MSA in the United States. Founded in 1998, Aspen Dental supports a nationwide network of more than 1,100 branded dental offices and is one of the largest and fastest growing dental service organizations in the country. We acquired the property at a 7.2% cap rate with annual rent of only 147,000. Given the quality of the real estate and low rent, re-tenanting would be a source of upside if it were ever given the opportunity. This combination of credit and use, exceptional real estate location, readily releasable box size, replaceable rent and potential upside is a prime example of a front view target acquisition. The asset was previously under contract with another buyer at a cap rate in the mid six range, providing market validation. transaction failed to close, the seller prioritized certainty and speed of execution. Frontview stepped in, closed quickly, and acquired the property at a higher cap rate. This transaction demonstrates our ability to create value through sourcing, asset selection, certainty of execution, and in the relationships we have developed across a fragmented marketplace, where our typical transaction size competes less with institutional capital. This allows us to avoid portfolio transactions where pricing is a premium and invariably contain real estate we would not want to own. Last quarter, we introduced the concept of evaluating select development partnership opportunities that would leverage our team's decades of retail development experience. These partnerships could expand our sourcing channels and allow us to earn higher yields while maintaining our focus on real estate quality and mitigated risk management. We continue to evaluate a number of potential developments that meet our underwriting standards. We remain highly selective and will only pursue opportunities where the incremental yield is accompanied by appropriately mitigated execution risk. We will update you in coming quarters on this initiative. Turning to the portfolio, we ended the quarter with only two vacant properties resulting in occupancy of more than 99% in line with our historical average of 98 to 99% plus. While we expect occupancy to remain high, we do not manage the portfolio to maximize a headline point in time occupancy percentage. Because we own exceptional real estate, a lease expiration or vacancy can create an opportunity to improve tenant credit, increase rent, create a valuable ground lease, or otherwise enhance the underlying property value. Historically, when we have retended to properties, we've achieved rent recaptures north of 110% of prior rent, which reinforces our strategy to create value by being patient and pursuing the right long-term outcome rather than defaulting to a quick sale. That being said, in some situations, a sale of a non-performing asset ends up yielding the best outcome. On page 15 of our investor presentation, we highlight a dark hops and drops that we sold just after quarter end for a five cap rate or 3.75 million, which was a 50% increase over our original cost basis of approximately 2.5 million. Another example of how our high quality real estate can yield outsized returns. From a credit standpoint, we are performing very well. We do not have any additions to our watch list quarter over quarter and have a placeholder for 50 basis points of bad debt for 2026 that remains relatively unidentified other than about 20 basis points attributable to a sleep number bankruptcy. For context, we previously owned four sleep number properties. We converted one to a seven brew. We retained one high performing location through the bankruptcy, sold another shortly after quarter end at a 6.5% cap rate and are re-tenanting the fourth, which is part of a cash flowing two tenant property. Sleep number now represents less than 33 basis points of ABR. Regarding renewals, we have only eight left this year, and we are already north of 115% recapture rate for properties we renewed this year. So we fully expect renewals for the year to be nicely accretive. During the quarter, we successfully re-tenanted one vacant former Walgreens to an Amazon, representing a significant increase in value over our basis. as close to the same rent, but with a much stronger credit profile and zero tenant improvement allowance. As previously mentioned, we only have two vacant properties, including the former Smokey Bones, which we expect to lease to two tenants and a small convenience store. Frontview's platform and strategy positions us for sector leading growth with size being a structural advantage. First, we can generate meaningful external growth as just $120 million of net investment increases our asset base by over 13%. to focus on only adding excellent real estate at attractive values for years to come. Third, we can scale the platform through effective use of A.I. and new technology tools. And finally, our exposure to markets with rising rents, as demonstrated by our retening results, creates meaningful mark to market opportunity. embedded within the existing portfolio. In closing, we are passionate about our company, our people, our alignment with our shareholders, and our ability to outperform. Our focus remains on driving top quartile per share cashflow growth through our differentiated net lease strategy. Every decision we make is made through the lens of owning 100% of the company. With that, I'll turn the call over to Pierre to review the quarterly numbers and guidance. Pierre?.

Thanks, Steve. We delivered another strong quarter driven by growth in recurring cash brands for both a creative capital deployment and organic portfolio activity. together with improved NOI margins. These results, combined with our improved cost of capital and lower levered balance sheet, gives us increased confidence in raising our outlook for the remainder of the year. Turning to the income statement. Second quarter base rent increased $200,000 sequentially to $16 million, driven by $59.5 million of net investment completed during the first half of the year. Contractual rent increases across the portfolio and the commencement of rent from the former Walgreens property released to Amazon. This growth was partially offset by the three properties discussed last quarter, which previously generated $181,000 of quarterly rent. Those leases have expired and the properties have been re-tenanted. However, most of that replacement rent will not commence until 2027. In addition to base rent, we generated $200,000 of other operating income related to a lease restructuring. As we discussed last quarter, other operating income is episodic and generally not included in our forecast. However, it is a natural result of actively managing a diversified real estate portfolio and may arise from time to time. In total, adjusted cash revenue increased to $16.4 million. Our non-reimbursable property costs or SLIFHG declined by $32,000 sequentially to $231,000 or only 1.4% of adjusted cash revenue. Improvement was driven by the Amazon rent commencement, a decrease in tenant credit issues, and continued benefit from the portfolio optimization work completed today. For the remainder of the year, we now expect property level slippage to approximate 2% of adjusted cash revenue, an improvement of 75 basis points from our prior forecast. Adjusted cash NOI, including the full impact of acquisitions and dispositions completed through quarter end, was 16.3%. After excluding other income and normalizing property level slippage, the portfolio enters the third quarter at an approximate $16.6 million quarterly cash NOI run rate. Importantly, that run rate does not include the future lease benefits once the retenanted properties come online. Once fully operating, the new leases will generate close to $225,000 of quarterly rent, representing a 23% increase over the prior leases at those properties. Recurring cash E&A was 2.5 million, consistent with prior quarter. And we continue to expect a similar level of cash E&A for the remainder of the year. Our investment in automation, AI workflows, and data analytics are allowing us to scale more efficiently, improve tenant monitoring, and enhance capital allocation decisions while maintaining discipline on overhead. Turning to the balance sheet, cash interest remains stable at $3.8 million, with our revolver benefiting from the $100 million of hedges we put in place last September. During the quarter, we accessed the equity market through our ATM program for the first time, issuing approximately 2.6 million shares at a gross price of $19.50 per share and raising $50.5 million of gross proceeds. We settled close to 900,000 shares during the quarter, generating $17.3 million in net proceeds. At quarter end, approximately 1.7 million forward shares remain unsettled, representing an additional $32.2 million of future net equity proceeds. This transaction marks an important step in the continued evolution of our company. It allows us to fund a creative investments with new common equity while preserving the remaining 50 million of capacity under our series A convertible preferred. Together, our available liquidity, unsettled forward equity, and remaining preferred capacity fully fund our current investment plan through 2027 at our existing net investment pace. We ended the quarter with more than $200 million of liquidity. Our loan-to-value was 33%, and net debt to annualized adjusted EBITDA RE was 5.4 times. Including the impact of the unsettled equity, our adjusted net debt to adjusted annualized EBITDA RE is only 4 times. In addition to our lower of our balance sheet and ample liquidity, our AFFO payout ratio was less than 65%, providing incremental retained cash flow to support future growth. Before turning to guidance, I want to briefly discuss our cost of capital and how we think about growth. Our cost of capital has improved meaningfully over the past year. Based on our current acquisition yield and long-term weighted average cost of capital, we are currently generating investment spreads north of 100 basis points. As highlighted on page 22 of our investor presentation, that spread drives an attractive growth profile. Our smaller asset base means that disciplined investments can have a meaningful impact on AFFO per share growth. However, improved access to capital does not change our underwriting approach and acquisition volume itself is not our objective. is to generate sector-leading AFFO for share growth by investing in properties that meet the criteria we have consistently outlined. Strong retail locations, larger markets, diversified tenant exposure, fungible real estate, and rents that are replaceable or below market. This portfolio construction gives us two complementary avenues for growth. The first is a creative external investment, or what is sometimes referred to as a net lease virtuous cycle. The second is internal cash flow growth generated through contractual rent increases, releasing activity, lower property level slippage, mark to market opportunity embedded in the portfolio and acquisitions made from retained cash flow. This combination matters because external investment alone does not guarantee durable per share growth. If the underlying real estate is weak or rents are not replaceable, tenant credit events and lease expirations can create cash flow errors and force assets to be sold below the original basis or released at meaningfully lower rates. Our focus is to address these risks at the time of acquisition and through portfolio optimization. The objective is not simply to add cash flow, but to protect and compound cash flow per share over the long term. Turning to guidance. With half the year behind us and the continued outperformance in the portfolio operations and capital deployment, we are increasing our 2026 AFM FOPO share guidance range to $1.32 to $1.34, from $1.29 to $1.33. We are also raising our net investment guidance to $120 million, implying $60 million in the back half of 2026. At the midpoint, this represents approximately 7% year over year growth and marks a third increase in our guidance since it was first introduced last November. The increase is driven by three primary factors. First, strong portfolio performance. Second, accretive capital deployment. And finally, continued discipline on overhead expenses. We entered the back half of the year with a low levered balance sheet, visible embedded rent growth, a high quality frontage focused real estate portfolio, and sufficient capital to execute our current investment plan. Our focus remains on translating those advantages into continued FFO per share growth, while maintaining the underlying writing discipline and real estate quality that define from you. With that, I'll turn the call over to the operator to open it up for Q&A. Operator?.

We will now begin the question and answer session. Please limit yourself to one question and follow up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of John Kilikowski with Wells Fargo. Your line is open. Please go ahead.

Hi, good morning. You know, my first one is just on now with this new access to equity here. I'm curious how you all are thinking about managing the investment guidance number. You know, we put up 120, so a nice raise, but clearly you have the capacity to go well beyond that. So I'm interested in thinking about how you're going to manage that. managed 26 and 27 acquisition numbers, assuming that you continue to have this access to equity.

Sure. Thanks, John. So I think the question or remarks that the acquisition volume isn't the goal. If we find good deals, we will we will pursue them. Having access to capital means there's more to look at. If you just remove the dispositions and you just do acquisitions, we're tracking close to 180 million if you just annualize the first half. So we can continue to just do that if we just reduce a little bit of the dispositions. I think there's room and capacity to expand it and obviously the capital that we raised the first 50 million and we also have the preferred equity that's at 17. So we still have to go through that. So I think we want to target cap rates that are very reasonable and we want to get through that capital. But certainly with the new assets and capital, we can pursue more deals. I think that's part of the plan going forward.

forward and back after you're going to share. Thank you and then here one more for you just on your opening remarks, you gave some helpful color on some, you know, re-tenanting. Would you mind walking through as much as you can just to clarify the rent expected from some of those re-tenantings and timing and are there any other upcoming known move out that you expect may impact? back 27 numbers or 26 numbers and be a step up into 27 that we should be modeling.

So thanks. So the three were $181,000. It happened in the first quarter for three tenants. We do expect some of that to come in line in the fourth quarter, but most of it will be in the first and second quarter of next year going up to 225,000. The other one, obviously, The Walgreens turning into Amazon was a nice pickup a lot sooner than we thought. And then we have a Smokey Bones, former Smokey Bones that's vacant. That one we're working through a new lease, and that could be a nice pickup as well before we ever execute that. for 2027, but that's all outside of the current in place and why, but more and why that we would expect to pick up this year.

Your next question comes from the line of Anthony Pallone with J.P. Morgan. Your line is open. Please go ahead.

Great, thank you. My first one is maybe a bit of a follow-on to one of John's questions. Now that your access to capital has improved quite a bit, what do you think the platform's acquisition capabilities are? It's $150 million a year, which is kind of where you've been running. over the last year sort of the right level, or do you feel like you have the capacity and you're seeing enough that with greater capital access, you can do more?.

Yes, no, thank you. Good question. As Pier had mentioned too, as we see opportunities, we certainly can do more. The marketplace is open for us. And I'll remind you that back in Q4 of 24, our first year as a public company, we actually acquired about $100 million of assets during that one quarter. And we have the same same team in place today. We do have, for the upcoming quarter, we've got very good visibility on what that's looking like. So far we've closed on three assets for about $8.4 million and about a 7.49 cap rate. And then we have 17 assets that are currently currently under contract right now at about a 7.4 cap rate for $55 million. And then we're beginning to build Q4 with good deal flow. So we're excited about the quarters and the acquisitions coming forward.

Okay, thanks. And then just one follow up. You mentioned 50 base points of bad debts that you've continued to use in the guide with 20 of it around sleep number. But is that 20 like you're using it or is that...

just because it sounds like you're doing pretty well in terms of, you know, addressing that situation. Yes. We're not, we're not really using it. Like it's, it's sort of, it was like not in the numbers until there's another 50 basis points of just like completely unidentified that, that additionally that would just keep, but we're not using it.

Your next question comes from the line of Rob Simon with Compass Point. Your line is open. Please go ahead.

Hey, guys. How's it going? Thanks a lot for taking the question. This one, by the way, really comprehensive prepared remarks. I have kind of just a clarification question. It actually might have been implied by what you guys said, but on the preferred, is it safe that you guys will likely draw that down, the balance of that down first prior to settling the remaining forward equity commitment. And I say that because like, if you just think about your net investment guidance and you kind of assume, no capital, no equity, common equity capital issued from here. The uses and sources implies about $50 million on our numbers of need by the end of the year. So is it just kind of safe to say that you'll use the preferred first since you lose access to it if you don't draw it?.

Thanks Rob. Yes, that's probably right. We have to draw the rest of the preferred by the one-year anniversary, so I think like November 10th or 11th. I would anticipate we use that first, we save the forward equity, and then we use the forward equity effectively in 27, like the $50 million gives us more to capacity to get through this year and some into next year. I mean, and mind you, like run four times lever if you take into account all that equity. We have plenty of runway. But yes, I will use that preferred first. Yep, okay, great. Thanks a lot. Appreciate it guys.

Your next question comes from the line of Jana Gallen with Bank of America. Your line is open. Please go ahead.

Thank you. Good morning and congrats on the quarter. I just wanted to ask an accounting question on the preferred. Is there anything in the AFFO guide similar to how on the forward you'd have to deal with the treasury stock method dilution? Right now, is there anything in the guide for that preferred?.

Hey, Jana, thank you. I appreciate the question. So as we've seen, the forward equity has been an issue for some of our peers. So this is governed under ASC 260 in terms of what the rules are for how that's handled. And it's handled on an if-converted basis. So it doesn't have the treasury stock method the way that normal forward equity would be accounted for. So it's going to be treated by what it is. If it's a preferred, we're going to run it through our income statement as a preferred dividend and not have the conversion of equity, but there's no, in the if converted method, there's no treasury stock method impact regarding that. So that's not in the guide. Right now the guide is assuming that the preferred stays as preferred and if it issues, if any of it does convert into common, The net impact is actually not that meaningful because we would have the 675, a preferred dividend would go away. So it's close to the same amount anyway.

Thank you, Pierre. And then again, thank you for the excellent disclosures. I just wanted to make sure I understood that in the tenant list in the SUP on pages 14 to 17, the asterisk for the new leases, those are the ones that you'd be, those are the that you expect to be coming online a little bit in the 4Q and then primarily through 21st quarter 27? That's right.

So those are not in our APR, but those will be in our APR once they, once they're operating open. but they're not paying rent until they're operating. So there's a lot of time, but those are the ones that we highlighted in asterisks in that.

yourself. Great, thank you. Your next question comes from the line of Ronald Camden with Morgan Stanley. Your line is open. Please go ahead.

Hey, great. And again, thanks so much for the disclosure. Just coming back to the acquisition pipeline a little bit. Sort of thinking about sort of the cap rate and the quarter, I think seven, seven, three, obviously you guys are also thinking about IRRs and so forth. I guess part of the strategy was to be able to get these higher cap rate deals. I'm just wondering, as you're thinking about the current pipeline over the next couple years, how do you see these cap rates trending? Do you see compression? Do you see more competition?.

Any color there would be helpful. Thanks. Sure. Yes, I know it's certainly tough to predict too far out. But what I can say for us right now is that the market is stable. We were expecting cap rates in that sort of 7374 range for Q3. We could see maybe slightly lower, a tick lower in Q4. And really, that's a result from increased instant just general interest in overall retail and net lease. I mean, there really is, I think, as we all know, an abundance of capital that's just really setting the tone for the marketplace. And so as we've seen retail and open air and shopping center cap rates come in, we've had a little pressure on cap rates rates, but certainly not to the same extent. So again, I think for the foreseeable future, we hopefully will be in this range.

I would just add, Ronald, if you think about the pipeline that Steve talked about. In the second quarter, our deal was $2.6 million median purchase price. We don't really compete with a lot of people at that purchase price. It takes a lot. You're doing 10%. 10 billion of acquisitions. It takes a lot of $2.6 million for us. We can do that. We have 17 deals under contract, three that we've already closed. So it's a very robust pipeline, but we're not running up against the competitors. And we're still finding deals that ink at Calgary at some point when we've done.

That's right. And we're not competing with the institutions on the big portfolios or the larger assets, which, again, is an advantage for us. Buying those smaller assets, sub $10 million, we're just not running into the big guys. And that provides us a competitive advantage in the market. Great, that's really helpful. And then my second one.

I think we lost Ron. Ron, if you don't mind, just come back in the queue. I think that the operator put you out.

My apologies. Your next question comes from the line of Matthew Erdner with Jones Trading. Your line is open. Please go ahead.

Hey, good morning, guys. Thanks for taking the question. I'd like to talk on dispositions going forward. Are there any credits that you guys are wanting to work out of? I noticed the, I guess, cap rate investment spread came in from call it 60 basis points in the first quarter to 22 this quarter.