Four ners Property Trust(FCPT) - 2024 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements The unaudited consolidated financial statements detail the company's financial position and performance Consolidated Balance Sheets Consolidated Balance Sheet Highlights | Metric (in thousands) | Sep 30, 2024 | Dec 31, 2023 | | :-------------------- | :----------- | :----------- | | Total Assets | $2,564,344 | $2,451,634 | | Total Liabilities | $1,209,603 | $1,191,771 | | Total Equity | $1,354,741 | $1,259,863 | | Real Estate Investments, Net | $2,306,535 | $2,210,475 | | Cash and Cash Equivalents | $44,495 | $16,322 | Consolidated Statements of Income Consolidated Statements of Income (Three Months Ended September 30) | Metric (in thousands) | 2024 | 2023 | YoY Change (%) | | :-------------------- | :---------- | :---------- | :------------- | | Total Revenues | $66,791 | $64,839 | +3.0% | | Total Operating Expenses | $29,096 | $29,061 | +0.1% | | Net Income | $25,612 | $24,192 | +5.9% | | Net Income Available to Common Shareholders | $25,581 | $24,161 | +5.9% | | Basic EPS | $0.27 | $0.27 | 0.0% | | Diluted EPS | $0.27 | $0.27 | 0.0% | | Dividends Declared per Common Share | $0.3450 | $0.3400 | +1.5% | Consolidated Statements of Income (Nine Months Ended September 30) | Metric (in thousands) | 2024 | 2023 | YoY Change (%) | | :-------------------- | :---------- | :---------- | :------------- | | Total Revenues | $199,737 | $185,463 | +7.7% | | Total Operating Expenses | $88,938 | $85,027 | +4.6% | | Net Income | $74,388 | $71,003 | +4.8% | | Net Income Available to Common Shareholders | $74,297 | $70,911 | +4.8% | | Basic EPS | $0.80 | $0.81 | -1.2% | | Diluted EPS | $0.80 | $0.80 | 0.0% | | Dividends Declared per Common Share | $1.0350 | $1.0200 | +1.5% | Consolidated Statements of Comprehensive Income Consolidated Statements of Comprehensive Income (Three Months Ended September 30) | Metric (in thousands) | 2024 | 2023 | | :-------------------- | :---------- | :---------- | | Net Income | $25,612 | $24,192 | | Other Comprehensive Income | $(16,864) | $3,602 | | Comprehensive Income | $8,748 | $27,794 | | Comprehensive Income Attributable to Common Shareholders | $8,737 | $27,718 | Consolidated Statements of Comprehensive Income (Nine Months Ended September 30) | Metric (in thousands) | 2024 | 2023 | | :-------------------- | :---------- | :---------- | | Net Income | $74,388 | $71,003 | | Other Comprehensive Income | $(11,198) | $4,375 | | Comprehensive Income | $63,190 | $75,378 | | Comprehensive Income Attributable to Common Shareholders | $63,112 | $75,281 | Consolidated Statements of Changes in Equity - Total equity increased from $1,259,863 thousand at December 31, 2023, to $1,354,741 thousand at September 30, 2024[6][10] Key Changes in Equity (Nine Months Ended September 30, 2024) | Item (in thousands) | Amount | | :------------------ | :---------- | | Net income | $74,297 | | ATM proceeds, net of issuance costs | $125,327 | | Dividends and distributions to equity holders | $(96,687) | | Other comprehensive income | $(11,198) | Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows (Nine Months Ended September 30) | Cash Flow Activity (in thousands) | 2024 | 2023 | YoY Change ($) | | :-------------------------------- | :---------- | :---------- | :------------- | | Net cash provided by operating activities | $110,691 | $128,699 | $(18,008) | | Net cash used in investing activities | $(136,763) | $(304,417) | $167,654 | | Net cash (used in) provided by financing activities | $45,784 | $165,721 | $(119,937) | | Net decrease in cash and cash equivalents | $19,712 | $(9,997) | $29,709 | | Cash and cash equivalents at end of period | $44,495 | $16,299 | $28,196 | - Purchases of real estate investments decreased significantly from $(328,469) thousand in 2023 to $(136,653) thousand in 2024[13] - Net proceeds from ATM equity issuance were $125,328 thousand in 2024, compared to $128,184 thousand in 2023[13] - Repayment of senior notes was $50,000 thousand in 2024, while proceeds from senior notes were $100,000 thousand in 2023[13] Notes to Consolidated Financial Statements Detailed explanations support the accounting policies and specific line items in the financial statements NOTE 1 – ORGANIZATION - Four Corners Property Trust, Inc (FCPT) is a self-administered REIT engaged in leasing restaurant and retail properties[14] - The company operates primarily through Four Corners Operating Partnership, LP (FCPT OP)[14] - FCPT was spun off from Darden Restaurants, Inc on November 9, 2015, acquiring 418 properties[14] - FCPT intends to maintain its REIT qualification, requiring distribution of at least 90% of its REIT taxable income[14] NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - The consolidated financial statements include FCPT and its subsidiaries, with intercompany transactions eliminated[15] - Real estate investments are recorded at cost less accumulated depreciation, with buildings depreciated over 7 to 55 years[17] - Acquisitions are generally accounted for as asset acquisitions, with purchase price allocated based on relative fair values[20] - Lease intangibles are amortized over the remaining lease term, affecting depreciation or rental revenue[21] - Debt comprises term loans, a revolving credit facility, and senior unsecured notes, carried at unpaid principal balance[27] - The company uses interest rate swaps designated as cash flow hedges for risk management[29][31] - Rental revenue is recognized on a straight-line basis over the lease term[37] - New accounting standards ASU 2023-07 (Segment Reporting) and ASU 2023-09 (Income Taxes) are being evaluated[51] NOTE 3 – CONCENTRATION OF CREDIT RISK - Darden leases represent approximately 49.3% of the company's scheduled base rents, indicating significant tenant concentration[52] Restaurant Brand Concentration (as of September 30, 2024) | Brand | % of Leased Properties | % of Revenues | | :---------------- | :--------------------- | :------------ | | Olive Garden | 27.2% | 35.3% | | Longhorn Steakhouse | 10.1% | 10.0% | - Properties are geographically diversified across 47 states, with no single state accounting for 10% or more of total rental revenue[54] - Credit risk exposure related to derivative instruments totaled $7.1 million at September 30, 2024[54] NOTE 4 – REAL ESTATE INVESTMENTS, NET AND INTANGIBLE ASSETS AND LIABILITIES, NET Real Estate Investments, Net (in thousands) | Metric | Sep 30, 2024 | Dec 31, 2023 | | :----------------------------------------- | :----------- | :----------- | | Land | $1,289,751 | $1,240,865 | | Buildings and improvements | $1,646,939 | $1,572,590 | | Equipment | $136,246 | $135,966 | | Total gross real estate investments | $3,072,936 | $2,949,421 | | Less: Accumulated depreciation | $(766,401) | $(738,946) | | Total real estate investments, net | $2,306,535 | $2,210,475 | | Intangible lease assets, net | $118,473 | $118,027 | | Total Real Estate Investments and Intangible Lease Assets, Net | $2,425,008 | $2,328,502 | - During the nine months ended September 30, 2024, the company invested $136.7 million in 42 properties[55] - For the nine months ended September 30, 2023, the company invested $328.5 million in 90 properties and sold six for a realized gain of $2.1 million[55] - Intangible lease assets, net, totaled $118,473 thousand at September 30, 2024[58] - Intangible lease liabilities, net, totaled $1,040 thousand at September 30, 2024[58] NOTE 5 – LEASES - Operating lease liabilities as a lessee were $4,248 thousand at September 30, 2024[62] Total Rental Revenue (as Lessor) (in thousands) | Metric | Q3 2024 | Q3 2023 | YTD Sep 2024 | YTD Sep 2023 | | :----- | :------ | :------ | :----------- | :----------- | | Lease revenue - operating leases | $57,144 | $54,882 | $169,255 | $155,149 | | Variable lease revenue | $2,144 | $2,361 | $7,145 | $7,118 | | Total Rental Revenue | $59,288 | $57,243 | $176,400 | $162,267 | - Future minimum lease payments to be received total $1,827,049 thousand[65] - Finance ground lease assets aggregated $13.9 million at September 30, 2024[66] NOTE 6 – DEBT, NET OF DEFERRED FINANCING COSTS - At September 30, 2024, debt consisted of $515 million in term loans and $625 million in senior unsecured notes[67] - The company has a $250 million revolving credit facility with no outstanding borrowings at September 30, 2024[68] - A new $85 million term loan was entered into in March 2024, with proceeds used to repay $50 million of senior notes[69][70] Scheduled Principal Debt Payments (in thousands) | Year | Amount | | :------------ | :---------- | | Remainder of 2024 | $0 | | 2025 | $150,000 | | 2026 | $150,000 | | 2027 | $250,000 | | 2028 | $140,000 | | Thereafter | $450,000 | | Total | $1,140,000 | - Amortization of deferred financing costs was $1.4 million for the nine months ended September 30, 2024[75] NOTE 7 – DERIVATIVE FINANCIAL INSTRUMENTS - The company uses interest rate swaps as cash flow hedges to manage interest rate risk on its variable-rate debt[76][77] - As of September 30, 2024, $460 million of variable-rate debt is hedged by swaps[77] - Four new interest rate swaps were entered into during the nine months ended September 30, 2024[77] - A $25 million cash flow hedge was terminated in February 2024, resulting in a $211 thousand asset to be amortized[79] Fair Value of Derivative Instruments (in thousands) | Metric | Sep 30, 2024 | Dec 31, 2023 | | :---------------- | :----------- | :----------- | | Derivative Assets | $14,495 | $20,952 | | Derivative Liabilities | $7,373 | $2,968 | - The fair value of derivatives in a net asset position related to credit-risk agreements was $7.1 million at September 30, 2024[87] NOTE 8 – SUPPLEMENTAL DETAIL FOR CERTAIN COMPONENTS OF CONSOLIDATED BALANCE SHEETS Other Assets (in thousands) | Component | Sep 30, 2024 | Dec 31, 2023 | | :---------------------------- | :----------- | :----------- | | Operating lease right-of-use asset | $3,534 | $3,923 | | Accounts receivable, net | $2,405 | $2,985 | | Prepaid acquisition costs and deposits | $1,431 | $1,364 | | Restricted cash | $0 | $8,461 | | Total Other Assets | $10,850 | $19,858 | Other Liabilities (in thousands) | Component | Sep 30, 2024 | Dec 31, 2023 | | :---------------------------- | :----------- | :----------- | | Accrued interest expense | $8,690 | $7,424 | | Operating lease liability | $4,248 | $4,642 | | Accrued tenant property tax | $3,361 | $2,518 | | Intangible lease liabilities, net | $1,040 | $1,196 | | Total Other Liabilities | $23,589 | $30,266 | NOTE 9 – INCOME TAXES - The company maintains its REIT qualification, generally exempting it from federal income tax on distributed net income[90] - Income tax expense primarily arises from its Taxable REIT Subsidiaries (TRS) and state/local taxes[90] Income Tax Expense (Benefit) (in thousands) | Period | 2024 (Expense) | 2023 (Benefit/Expense) | | :------------ | :------------- | :--------------------- | | Three Months | $(90) | $89 | | Nine Months | $(203) | $(50) | - A deferred tax benefit of $153 thousand was recorded for the nine months ended September 30, 2024[90] NOTE 10 – EQUITY - At September 30, 2024, there were 96,510,405 shares of common stock issued and outstanding[92] - Dividends of $0.3450 per share were declared for each quarter in 2024[92] - A new $500.0 million At-The-Market (ATM) program was established, with $483.3 million remaining available[93][94] - During the nine months ended September 30, 2024, the company issued 4,792,842 shares under ATM programs for net proceeds of $125.3 million[94] - Noncontrolling interest represents 114,559 FCPT Operating Partnership Units held by third parties[95] Earnings Per Share (Nine Months Ended September 30) | Metric | 2024 | 2023 | | :----- | :---- | :---- | | Basic EPS | $0.80 | $0.81 | | Diluted EPS | $0.80 | $0.80 | NOTE 11 – STOCK-BASED COMPENSATION - At September 30, 2024, 1,532,106 shares of common stock were available for award under the incentive plan[100] - The total unrecognized compensation cost for awards was approximately $10.0 million at September 30, 2024[101] - Outstanding Restricted Stock Units (RSUs) were 243,685 at September 30, 2024[102] - Outstanding Restricted Stock Awards (RSAs) were 227,191 at September 30, 2024[103] - The target number of unvested Performance Stock Units (PSUs) was 245,004 at September 30, 2024[104] NOTE 12 – FAIR VALUE MEASUREMENTS - The company classifies most derivative valuations as Level 2, as the impact of Level 3 inputs was not significant[109] Fair Value of Derivative Instruments (in thousands) | Metric | Sep 30, 2024 | Dec 31, 2023 | | :---------------- | :----------- | :----------- | | Derivative Assets | $14,495 | $20,952 | | Derivative Liabilities | $7,373 | $2,968 | - The fair value of the company's debt was $1,137,751 thousand at September 30, 2024, compared to a carrying value of $1,140,000 thousand[113] NOTE 13 – COMMITMENTS AND CONTINGENCIES - Management believes the resolution of routine legal claims will not have a material adverse effect on its financial position[114] NOTE 14 – SEGMENTS - The company operates in two segments: real estate operations and restaurant operations[115] Segment Revenues (Three Months Ended September 30, 2024) (in thousands) | Segment | Rental Revenue | Restaurant Revenue | Total Revenues | | :-------------------- | :------------- | :----------------- | :------------- | | Real Estate Operations | $59,288 | $0 | $59,505 | | Restaurant Operations | $0 | $7,503 | $7,503 | | Total | $59,288 | $7,503 | $66,791 | Segment Net Income (Three Months Ended September 30, 2024) (in thousands) | Segment | Net Income | | :-------------------- | :--------- | | Real Estate Operations | $25,552 | | Restaurant Operations | $60 | Segment Revenues (Nine Months Ended September 30, 2024) (in thousands) | Segment | Rental Revenue | Restaurant Revenue | Total Revenues | | :-------------------- | :------------- | :----------------- | :------------- | | Real Estate Operations | $176,400 | $0 | $177,050 | | Restaurant Operations | $0 | $23,337 | $23,337 | | Total | $176,400 | $23,337 | $199,737 | Segment Net Income (Nine Months Ended September 30, 2024) (in thousands) | Segment | Net Income | | :-------------------- | :--------- | | Real Estate Operations | $74,184 | | Restaurant Operations | $204 | Total Assets by Segment (September 30, 2024) (in thousands) | Segment | Total Assets | | :-------------------- | :----------- | | Real Estate Operations | $2,542,444 | | Restaurant Operations | $21,900 | | Total | $2,564,344 | NOTE 15 – SUBSEQUENT EVENTS - After September 30, 2024, the company invested $11.7 million in the acquisition of four net lease properties[123] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management provides a narrative analysis of the company's financial condition, results, and capital resources Overview - FCPT is a REIT that owns and leases properties for restaurant and retail industries through net lease arrangements[126] - The company's strategy involves acquiring properties to grow its portfolio and reduce reliance on Darden[126] - During the nine months ended September 30, 2024, FCPT acquired 42 properties for $136.7 million[126] Lease Portfolio Characteristics (as of September 30, 2024) | Characteristic | Value | | :------------------------------ | :---------------- | | Number of properties | 1,153 | | States of operation | 47 | | Aggregate leasable area | 7.8 million sq ft | | Occupancy | 99.6% | | Average remaining lease term (weighted by ABR) | 7.3 years | | Average annual rent escalation (through Dec 31, 2029) | 1.4% | | Contractual base rent collected (Q3 2024) | 99.8% | | Investment-grade tenancy (weighted by ABR) | 57% | Results of Operations Financial performance details changes in revenues, expenses, and net income across its operating segments - Total revenues increased by 3.0% for the three months and 7.7% for the nine months ended September 30, 2024[129] - Net income attributable to common shareholders increased by 5.9% for the three months and 4.8% for the nine months[129] Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023 - Rental revenue increased by $2.0 million (3.6%) primarily due to the acquisition of 48 leased properties[130] - General and administrative expenses rose by $349 thousand (6.3%) due to increased compensation[131] - Depreciation and amortization expense increased by $0.2 million (1.4%) due to property acquisitions[132] - Interest expense increased by less than $0.1 million, driven by a new $85 million term loan[134] - No properties were sold in Q3 2024, compared to a realized gain of $318 thousand in the prior year[135] - Income tax expense was $90 thousand in Q3 2024, shifting from an $89 thousand benefit in Q3 2023[136] - Restaurant revenues decreased by less than $0.1 million, mainly due to city construction projects[137] - Total restaurant expenses decreased by $200 thousand (2.8%) due to improved staffing[137] Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023 - Rental revenue increased by $14.1 million (8.7%) due to the acquisition of 48 leased properties[138] - General and administrative expenses increased by $911 thousand (5.3%) due to higher compensation[139] - Depreciation and amortization expense increased by $3.0 million (8.0%) due to property acquisitions[140] - Interest expense increased by $4.7 million, driven by new debt issuance and partially offset by a note repayment[143] - No properties were sold in YTD Sep 2024, compared to a realized gain of $2.1 million in the prior year[144] - Income tax expense was $203 thousand in YTD Sep 2024, up from $50 thousand in YTD Sep 2023[145] - Restaurant revenues increased by $141 thousand (0.6%) due to higher net pricing[146] - Total restaurant expenses increased by $204 thousand (0.9%) primarily due to an increase in cost of goods sold[146] Critical Accounting Policies - A summary of FCPT's critical accounting policies is included in its Annual Report on Form 10-K for 2023[147] New Accounting Standards - A discussion of new accounting standards is included in Note 2 of the consolidated financial statements[148] Liquidity and Financial Condition - At September 30, 2024, the company had $44.5 million in cash and $250 million in borrowing capacity[149] - The weighted average interest rate on term loans, after hedges, was 3.76% at September 30, 2024[149] - A new $85 million term loan was entered into on March 14, 2024, with proceeds used to repay $50 million of notes[149][151] - A new $500.0 million ATM program was established, with $483.3 million available for issuance[153][154] - Liquidity needs are expected to be met by operating activities, credit facilities, and future debt or equity issuance[154] - The company's exposure to rising property operating costs is mitigated by net leases[154] Supplemental Financial Measures Funds From Operations (FFO) and Adjusted Funds From Operations (AFFO) (in thousands, except per share data) | Metric | Q3 2024 | Q3 2023 | YTD Sep 2024 | YTD Sep 2023 | | :----- | :------ | :------ | :----------- | :----------- | | FFO | $39,184 | $37,256 | $114,700 | $106,258 | | FFO per diluted share | $0.41 | $0.41 | $1.23 | $1.20 | | AFFO | $41,080 | $37,979 | $120,003 | $109,799 | | AFFO per diluted share | $0.43 | $0.42 | $1.29 | $1.24 | - FFO and AFFO are non-GAAP measures used to understand the business and assess dividend capacity[158][160] Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes to market risk disclosures have occurred since December 31, 2023 - There have been no material changes to the company's market risk exposure since December 31, 2023[161] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2024 - The effectiveness of disclosure controls and procedures was evaluated and concluded to be effective as of September 30, 2024[162] - No material changes in internal control over financial reporting occurred during the third quarter of 2024[163] PART II. OTHER INFORMATION Item 1. Legal Proceedings Routine legal claims are not expected to have a material adverse effect on the company's operations - The company is party to various routine claims and legal actions arising in the ordinary course of business[165] - Management believes the outcome of these proceedings will not have a material adverse effect on the company[165] Item 1A. Risk Factors There have been no material changes to risk factors disclosed in the 2023 Annual Report on Form 10-K - No material changes to the risk factors as disclosed in the Annual Report for the year ended December 31, 2023[166] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or use of proceeds to report - No unregistered sales of equity securities and no use of proceeds to report[166] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities to report - No defaults upon senior securities to report[166] Item 4. Mine Safety Disclosure This item is not applicable to the company - Mine Safety Disclosure is not applicable to the company[166] Item 5. Other Information No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the quarter - During Q3 2024, no director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement[167] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including certifications and financial statements - Exhibits include organizational documents, agreements, officer certifications, and iXBRL formatted financial statements[169] Signatures - The report was signed on October 31, 2024, by the CEO, CFO, and Chief Accounting Officer[170]