Four ners Property Trust(FCPT) - 2024 Q1 - Quarterly Results

Company Overview Company Profile & Strategy FCPT builds an e-commerce resistant portfolio with strong tenant coverage, a disciplined investment strategy, and an investment-grade balance sheet, diversifying into resilient retail categories - FCPT's portfolio is e-commerce resistant, featuring high tenant EBITDAR/rent coverage, aiming for high tenant retention and low vacancy rates[8] - The company utilizes a proprietary, data-driven scorecard for objective property ratings and prudent pricing[8] - FCPT has diversified from a single tenant to 149 brands, establishing new verticals in resilient retail categories such as medical retail[8] - The company is committed to maintaining a conservative leverage ratio of 5.0x-6.0x and has a well-staggered, predominantly fixed-rate debt maturity schedule[8] 2024 YTD Portfolio & Investment Highlights As of Q1 2024, FCPT's portfolio boasts 99.6% occupancy, strong tenant EBITDAR coverage, and a long average lease term, with $15.9 million deployed year-to-date at a 6.9% average initial cash yield 2024 YTD Portfolio Highlights (As of March 31, 2024) | Metric | Value | | :-------------------------- | :------ | | Occupancy Rate | 99.6% | | Tenant EBITDAR Coverage | 4.9x | | Avg Annual Rent Growth | 1.4% | | Avg Remaining Lease Term | 7.6 years | | Leases | 1,137 | | Brands | 149 | | Investment Grade Tenant % | 59% | | Leases Expiring Pre-2027 % | <6.0% | 2024 YTD Investment Highlights | Metric | 2023 | 2024 YTD | | :---------------------- | :------ | :--------- | | Capital Deployed (million USD) | $332.6 | $15.9 | | Avg Initial Cash Yield | 6.7% | 6.9% | | Initial Avg Lease Term | 12 years | 10 years | | Dispositions (million USD) | $29.3 | 1 | | Disposition Cash Yield | 6.5% | | 2024 YTD Financial Highlights FCPT demonstrated strong financial performance in Q1 2024 with $0.43 AFFO per share and $0.41 FFO per share, maintaining ample liquidity, conservative leverage, and investment-grade credit ratings Q1 2024 Per Share Financials | Metric | Value | | :-------------------- | :------ | | Net Income per Share | $0.26 | | AFFO per Share | $0.43 | | FFO per Share | $0.41 | Q1 2024 Financial Position | Metric | Value | | :-------------------------- | :---------- | | Liquidity | $277 million | | Unencumbered ABR | 100% | | Net Debt to Adj. EBITDAre Ratio | 5.6x | | Fixed Charge Coverage | 4.3x | | Weighted Avg Debt Term | 4.5 years | | Fixed-Rate Debt % | 95% | | Credit Rating (Fitch/Moody's) | BBB / Baa3 (Stable Outlook) | Acquisition Volume Trends Since 2015, FCPT has consistently executed its acquisition strategy, showing steady growth in property count and acquisition volume while maintaining stable capitalization rates Annual Acquisition Volume (2015-2023) | Year | Properties | Acquisition Volume (million USD) | Cap Rate | Avg Size (million USD) | | :--- | :------------- | :---------- | :------- | :---------------- | | 2015 | 418 | SPIN | 6.6% | - | | 2016 | 475 (+57) | $94 | 6.8% | $1.6 | | 2017 | 515 (+40) | $99 | 6.5% | $2.3 | | 2018 | 610 (+95) | $263 | 6.5% | $2.7 | | 2019 | 699 (+89) | $199 | 6.5% | $2.2 | | 2020 | 799 (+100) | $223 | 6.5% | $2.2 | | 2021 | 919 (+120) | $257 | 6.5% | $2.1 | | 2022 | 1023 (+104) | $286 | 6.5% | $2.6 | | 2023 | 1111 (+88) | $333 | 6.7% | $3.5 | High-Quality Portfolio Portfolio Performance & Stability FCPT's portfolio demonstrates strong and consistent stability, maintaining high rent collection and occupancy rates even during the COVID-19 pandemic, showcasing its net lease resilience - FCPT maintains a strong record in rent collection and occupancy rates, performing exceptionally even during the COVID-19 pandemic[20] Rent Collection Rate (Q1 2020 - Q1 2024) | Period | Rent Collection Rate | | :------- | :-------------- | | Q1 2020 | 99.5% | | Q2 2020 | 98.8% | | Q3 2020 | 99.6% | | Q4 2020 | 99.6% | | Q1 2021 | 99.7% | | Q2 2021 | 99.8% | | Q4 2021 | 99.8% | | Q1 2022 | 99.8% | | Q2 2022 | 99.7% | | Q3 2022 | 99.9% | | Q4 2022 | 99.9% | | Q1 2023 | 99.7% | | Q2 2023 | 99.9% | | Q3 2023 | 99.8% | | Q4 2023 | 99.8% | | Q1 2024 | 99.8% | Occupancy Rate (Q1 2020 - Q1 2024) | Period | Occupancy Rate | | :------- | :-------- | | Q1 2020 | 99.6% | | Q2 2020 | 99.6% | | Q3 2020 | 99.7% | | Q4 2020 | 99.8% | | Q1 2021 | 99.6% | | Q2 2021 | 99.6% | | Q4 2021 | 99.7% | | Q1 2022 | 99.8% | | Q2 2022 | 99.9% | | Q3 2022 | 99.9% | | Q4 2022 | 99.9% | | Q1 2023 | 99.9% | | Q2 2023 | 99.9% | | Q3 2023 | 99.8% | | Q4 2023 | 99.8% | | Q1 2024 | 99.8% | Geographic Diversification FCPT's geographically diversified portfolio is concentrated in fast-growing, lower-cost suburban areas like Texas and Florida, benefiting from demographic shifts and high in-migration rates - FCPT's portfolio is primarily located in fast-growing and diversified suburban areas, with Texas and Florida being the top two states for in-migration in 2023[25] - The geographic strategy benefits from demographic shifts towards lower cost of living and high quality of life states, a trend accelerated by remote work[25] Tenant Rental Coverage & Lease Structure FCPT's portfolio maintains strong rent coverage, particularly for Darden spin-off properties, actively acquiring low-rent, high-coverage assets, including ground leases with inherent value - FCPT's portfolio benefits from strong rent coverage, with a focus on acquiring properties with low rent and high rent coverage[28] Tenant Rental Coverage | Category | Coverage | | :------------- | :------- | | Other | 5.5x | | Darden | 2.8x | | Non-Restaurant | 2.7x | - Ground leases, where tenants own the building and rent is tied solely to land value, imply very high EBITDAR rent coverage, with building ownership typically reverting to FCPT at lease end[28] Brand Exposure & Diversification FCPT's portfolio is diversified across 1,137 leases and 149 brands, with Darden restaurants comprising 37% of annualized base rent and 59% from investment-grade tenants Brand Exposure by Annualized Base Rent FCPT's portfolio is diversified across 149 brands and 1,137 leases, with Darden restaurants accounting for 37% of annualized base rent, followed by other restaurants and auto services Brand Exposure by Annualized Base Rent (ABR) | Category | Leases | ABR % | | :---------------- | :------- | :--------- | | Darden Restaurants | 314 | 37% | | Other Restaurants | 318 | 21% | | Non-Restaurant | 115 | 10% | | Auto Service | 139 | 9% | | Chili's | 82 | 8% | | Medical Retail | 90 | 8% | | Other / DARDEN | 26 | 4% | | Other Retail | 53 | 3% | - The portfolio comprises 1,137 leases across 149 brands, with Darden restaurants being the largest segment, accounting for 37% of ABR[29] Detailed Brand Diversification FCPT's top ten brands are primarily Darden concepts like Olive Garden and Longhorn Steakhouse, with 59% of the portfolio's annualized base rent derived from investment-grade tenants FCPT Portfolio Top Ten Brands by ABR % | Rank | Brand Name | Area (thousand sq ft) | ABR % | | :--- | :----------------- | :------------- | :--------- | | 1 | Olive Garden | 2673 | 36.8% | | 2 | Longhorn Steakhouse | 645 | 10.4% | | 3 | Chili's | 450 | 7.7% | | 4 | Buffalo Wild Wings | 171 | 2.5% | | 5 | Cheddar's | 112 | 2.2% | | 6 | Red Lobster | 130 | 1.7% | | 7 | Caliber Collision | 390 | 1.6% | | 8 | Bahama Breeze | 92 | 1.5% | | 9 | KFC | 95 | 1.5% | | 10 | WellNow Urgent Care | 78 | 1.4% | - Of the portfolio's annualized base rent (ABR), 59% is derived from investment-grade tenants[32] Thoughtful Brand Selection Strategy FCPT strategically selects national brands with strong sales and market-aligned rents, focusing on mid-sales volume concepts in casual, fast-casual, and quick-service dining to ensure rent support and low rent-to-sales ratios - FCPT focuses on national brands with strong sales and market-aligned rents[34] - The company targets properties within the mid-sales volume range for casual dining, fast-casual, and quick-service restaurants, concepts that offer rent support while maintaining low rent levels[34] Lease Maturity Schedule FCPT's lease maturity schedule is well-staggered with a 7.6-year weighted average lease term, and less than 6.0% of rental income expiring before 2027, indicating strong stability and high renewal rates - The portfolio's weighted average lease term is 7.6 years, with less than 6.0% of rental income expiring before 2027[35] - FCPT has achieved very high lease renewal rates to date[35] Lease Maturity Schedule (Annualized Base Rent %) | Year | Darden Spin-off | Other | Total | | :--- | :---------- | :---- | :---- | | 2024 | 8.0% | 0.9% | 8.9% | | 2025 | 8.3% | 2.2% | 10.5% | | 2026 | 7.1% | 2.8% | 9.9% | | 2027 | 7.4% | 4.7% | 12.1% | | 2028 | 6.6% | 3.6% | 10.2% | | 2029 | 4.7% | 4.1% | 8.8% | | 2030 | 4.7% | 2.5% | 7.2% | | 2031 | 0.9% | 2.9% | 3.8% | | 2032 | 2.2% | 2.3% | 4.5% | | 2033 | 2.8% | 8.7% | 11.5% | | 2034 | 4.7% | 1.9% | 6.6% | | 2035 | 3.6% | 2.3% | 5.9% | | 2036 | 4.1% | 3.3% | 7.4% | | 2037 | 2.5% | 2.3% | 4.8% | | 2038 | 2.9% | 2.9% | 5.8% | | 2039 | 2.3% | 0.4% | 2.7% | | 2040 | 8.7% | 1.4% | 10.1% | | 2041 | 1.9% | 0.8% | 2.7% | | 2042 | 2.3% | 1.7% | 4.0% | | 2043 | 3.3% | 0.4% | 3.7% | | 2044 | 2.3% | 1.3% | 3.6% | Restaurant Industry Performance Recent Baird restaurant surveys indicate quick-service and casual dining sales are maintaining or exceeding prior-year levels, with strong national brands gaining market share, which is expected to support FCPT's rent coverage - Baird's weekly restaurant surveys indicate quick-service and casual dining sales consistently maintain or exceed prior-year levels[38] - FCPT's top three brands (Olive Garden, LongHorn Steakhouse, and Chili's) are benefiting from improved restaurant margins[38] - Strong national brands are gaining market share from independent restaurant chains; this is expected to provide robust rent coverage even in a weaker macroeconomic environment[38] Darden Performance and Concentration Darden restaurants have surpassed pre-pandemic performance, maintaining strong credit ratings and improving same-store sales and EBITDA margins for key brands, while FCPT's Darden rent coverage improved and concentration decreased Darden Restaurant Performance and FCPT Metrics | Metric | Inception | Pre-COVID | Current (Q4 2023) | | :-------------------------------- | :-------- | :-------- | :------------------ | | Darden Rating (Fitch/Moody's/S&P) | BBB/Baa3/BBB | BBB/Baa2/BBB | BBB/Baa2/BBB | | Olive Garden SSS (million USD) | $4.9 | $5.1 | $5.5 | | LongHorn SSS (million USD) | $3.7 | $3.8 | $4.7 | | Olive Garden EBITDA Margin | 20.3% | 21.0% | 22.5% | | LongHorn EBITDA Margin | 17.8% | 19.2% | 18.7% | | Total Revenue (million USD) | $7,513 | $8,916 | $11,899 | | FCPT Rating (Fitch/Moody's) | N/A | BBB-/NA | BBB/Baa3 | | Darden Rent Coverage | 4.2x | 5.1x | 5.5x | | Darden Restaurants | 418 | 426 | 455 | | Darden % of ABR | 100% | 71% | 51% | - Darden's Olive Garden and LongHorn same-store sales have grown from pre-pandemic levels, with Olive Garden's EBITDA margins also improving[39] - FCPT's Darden rent coverage has increased from 4.2x at inception to 5.5x currently, while Darden's concentration in FCPT's annualized base rent has decreased from 100% to 51%[39] Diversification: Auto Industry FCPT invests in e-commerce and recession-resistant auto service centers, including collision repair and tire services, leased to creditworthy operators in high-traffic corridors, selected for long-term relevance - FCPT targets auto service centers (including collision repair, tire services, gas stations with convenience stores, car washes, and auto parts retailers), leased to creditworthy operators[40] - Auto service properties are e-commerce and recession-resistant, located in high-traffic corridors, and selected for their long-term relevance, including adaptability to EV utilization[40] - Limited tenant relocation options due to zoning restrictions contribute to higher tenant renewal probabilities[40] Diversification: Medical Retail FCPT's medical retail investments focus on e-commerce and recession-resistant outpatient services like urgent care, dental, primary care, and veterinary care, benefiting from operator consolidation and service shifts Medical Retail Strategy FCPT's medical retail investments focus on outpatient services such as urgent care, dental, primary care, and veterinary care, characterized by e-commerce and recession resistance, benefiting from industry trends - FCPT's medical retail segment primarily focuses on outpatient services such as urgent care, dental, primary care, veterinary care, and outpatient/ambulatory surgery centers[41] - Medical retail is e-commerce and recession-resistant due to its service nature, large customer base, and favorable demographic trends[41] - Operator consolidation and organic growth in medical retail are improving tenant credit and scale, with services shifting from hospitals to lower-cost retail centers[41] Healthcare Industry Targets FCPT targets medical retail properties with lower physical building requirements and less acute care, such as urgent care, dental, and primary care clinics, avoiding declining verticals like acute care hospitals - FCPT targets medical retail properties with lower physical building requirements and less acute care, such as urgent care, dental, veterinary, diagnostic/imaging, and primary care clinics[43] - FCPT avoids investing in acute care hospitals or declining verticals, focusing on properties within new growth verticals with long-term potential[43] Conservative Financial Position Debt Maturity Schedule & Financial Policy FCPT maintains a conservative financial policy with a well-staggered debt maturity schedule, strong liquidity, minimal floating-rate exposure (95% fixed-rate), and investment-grade credit ratings (BBB/Baa3) - FCPT maintains a well-staggered debt maturity schedule with no near-term debt maturities before 2024[47][49] - The company possesses strong liquidity, including a $250 million undrawn revolving credit facility and 100% unencumbered assets[47][49] - FCPT's debt is 95% fixed-rate, including interest rate hedges, minimizing floating-rate exposure[47] - FCPT holds investment-grade credit ratings of BBB from Fitch and Baa3 from Moody's[48] Debt Maturity Schedule (in millions USD) | Year | Unsecured Notes | Unsecured Term Loan | Drawn Revolver | Undrawn Revolver | Total | | :--- | :-------------- | :------------- | :------------- | :--------------- | :---- | | 2024 | $0 | $0 | $0 | $250 | $250 | | 2025 | $0 | $0 | $0 | $0 | $0 | | 2026 | $0 | $0 | $0 | $0 | $0 | | 2027 | $0 | $0 | $0 | $0 | $0 | | 2028 | $75 | $0 | $0 | $0 | $75 | | 2029 | $100 | $0 | $0 | $0 | $100 | | 2030 | $100 | $0 | $0 | $0 | $100 | | 2031 | $50 | $0 | $0 | $0 | $50 | | 2032 | $140 | $0 | $0 | $0 | $140 | | 2033 | $150 | $0 | $0 | $0 | $150 | Company Momentum Since Inception Since inception, FCPT has achieved significant growth in its portfolio, annualized base rent, and market capitalization, while diversifying its tenant base and securing investment-grade credit ratings Company Momentum Since Inception (As of March 31, 2023 vs. Inception) | Metric | Inception | As of March 31, 2023 | Change | | :-------------------- | :---------- | :------------ | :----- | | Team Members | 4 | 37 | +33 | | Annualized Base Rent (million USD) | $94.4 | $219.6 | +$125.2 | | Properties | 418 | 1,115 | +697 | | Brands | 5 | 149 | +144 | | Darden % | 100% | 51% | -49% | | Weighted Avg Lease Term | 15 years | 7.6 years | -7.4 years | | Equity Market Cap (billion USD) | $0.848 | $2.3 | +$1.452 | | Enterprise Value (billion USD) | $1.3 | $3.4 | +$2.1 | | Rating | Unrated | BBB (FITCH) / Baa3 (MOODY'S) | Upgraded | - FCPT since inception, has significantly diversified its brand portfolio from 5 to 149, reducing Darden's concentration in annualized base rent from 100% to 51%[50] - The company has achieved investment-grade credit ratings (BBB/Baa3) since its inception from an unrated status[50] Appendix Acquisition and Underwriting Framework FCPT's acquisition philosophy targets strong, well-located retail brands with creditworthy lease guarantors, ensuring accretive investments at low costs, using a 50%/50% credit and real estate scorecard for consistent underwriting - FCPT's acquisition philosophy aims to acquire strong, well-located retail brands with creditworthy lease guarantors, ensuring accretive investments at low costs[53] - Underwriting criteria are split 50%/50% between credit and real estate metrics, utilizing a comprehensive scorecard for objective and consistent evaluation[53] - Key credit criteria include guarantor credit, brand durability, store performance, and lease structure, while real estate criteria cover location, access/visibility, and site/building quality[56] Sustainability Framework (ESG) FCPT integrates ESG principles, continuously reviewing policies for environmental sustainability, social responsibility, employee well-being, and governance, including negative screening in underwriting and maintaining best-in-class corporate governance - FCPT integrates ESG principles into its operations, including environmental risk assessment, values-based negative screening in underwriting, and a commitment to sustainable business practices[57] - The company fosters an inclusive, team-oriented culture with high employee retention and is certified as a 'Great Place to Work'[57] - FCPT maintains best-in-class corporate governance, with compensation closely aligned with shareholder interests, and a board of eight directors including four women and seven independent members[57] Glossary and Non-GAAP Definitions This section defines key financial terms used in the presentation, including non-GAAP metrics like FFO, AFFO, EBITDA, EBITDAre, and Adjusted EBITDAre, along with cautionary notes on their use and limitations - The presentation includes non-GAAP financial measures such as FFO, AFFO, EBITDA, EBITDAre, and Adjusted EBITDAre, provided as supplemental information to GAAP metrics[58][59] - These non-GAAP measures are not substitutes for GAAP financial performance indicators and have limitations as they exclude certain non-cash and other costs[58][59][61] - Definitions for ABR (Annualized Base Rent), Tenant EBITDAR, and Tenant EBITDAR Coverage are also provided to clarify portfolio performance metrics[58][60] Reconciliation Schedules This section provides reconciliation tables for net income to Adjusted EBITDAre, and FFO and AFFO, detailing adjustments for the three months ended March 31, 2024 and 2023 Net Income to Adjusted EBITDAre Reconciliation This reconciliation table presents the net income to EBITDA, EBITDAre, and Adjusted EBITDAre reconciliation for the three months ended March 31, 2024 and 2023, detailing adjustments for interest expense, depreciation, and gains/losses on dispositions Net Income to Adjusted EBITDAre Reconciliation (For the Three Months Ended March 31) | (thousand USD) | 2024 | 2023 | | :------------------------------------------ | :----- | :----- | | Net Income | $24,074 | $23,155 | | Adjustments: | | | | Interest Expense | 12,281 | 9,918 | | Income Tax Expense | 27 | 48 | | Depreciation & Amortization | 13,467 | 12,176 | | EBITDA | 49,849 | 45,297 | | Adjustments: | | | | Gain on Dispositions & Real Estate Exchanges | - | (1,562) | | Real Estate Impairment | - | - | | EBITDAre | 49,849 | 43,735 | | Adjustments: | | | | Real Estate Transaction Costs | 49 | 51 | | Loss on Debt Extinguishment | - | - | | Adjusted EBITDAre | 49,898 | 43,786 | | Annualized Adjusted EBITDAre | 199,591 | 175,142 | - Adjusted EBITDAre increased from $43,786 thousand in Q1 2023 to $49,898 thousand in Q1 2024[65] FFO & AFFO Reconciliation This reconciliation table presents the net income to FFO and AFFO reconciliation for the three months ended March 31, 2024 and 2023, detailing adjustments for depreciation, straight-line rent, equity-based compensation, and other non-cash items FFO & AFFO Reconciliation (For the Three Months Ended March 31) | (thousand USD, except share and per share data) | 2024 | 2023 | | :------------------------------------------ | :----- | :----- | | Net Income | $24,074 | $23,155 | | Depreciation & Amortization | 13,430 | 12,176 | | Realized Gain on Real Estate Sales | - | (1,562) | | FFO (NAREIT Defined) | $37,504 | $33,769 | | Straight-Line Rent Income | (1,174) | (1,100) | | Deferred Income Tax Benefit | (72) | (48) | | Equity-Based Compensation Expense | 1,640 | 1,400 | | Non-Cash Amortization of Deferred Financing Costs | 638 | 500 | | Depreciation of Non-Real Estate Investments | 37 | 37 | | Other Non-Cash Income Adjustments | 55 | 55 | | Adjusted Funds From Operations (AFFO) | $39,128 | $34,591 | | Fully Diluted Shares Outstanding | 92,044,319 | 90,000,000 | | FFO per Share (Diluted) | $0.41 | $0.38 | | AFFO per Share (Diluted) | $0.43 | $0.38 | - Diluted FFO per share increased from $0.38 in Q1 2023 to $0.41 in Q1 2024, while diluted AFFO per share rose from $0.38 to $0.43 over the same period[67] Footnotes This section provides detailed footnotes and definitions for various data and metrics used in the investor presentation, clarifying data sources, calculation methodologies, and specific exclusions - Footnotes clarify data for portfolio and investment highlights, financial highlights, and annual acquisition volume, often specifying 'as of March 31, 2024' or exclusions[69] - Definitions for Annualized Base Rent (ABR), Tenant EBITDAR, and Tenant EBITDAR Coverage are provided, along with the methodology for estimating Darden EBITDAR coverage[71][74][75] - Specific data sources are cited, such as Nation's Restaurant News for average brand sales and The Baird Restaurant Surveys for industry trends[72][73]