Four ners Property Trust(FCPT) - 2025 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported Q1 AFFO of $0.44 per share, reflecting a 2.3% increase from the previous year [22] - Q1 cash rental income reached $63.2 million, representing a 9.1% growth compared to the same quarter last year [22] - The current annual cash-based rent for leases in place is $243.9 million, with a weighted average five-year annual cash rent escalator of 1.4% [22] - Cash G&A expenses, excluding stock-based compensation, were $4.9 million, accounting for 7.7% of cash rental income for the quarter, down from 7.9% the previous year [22][23] - The portfolio occupancy rate stands at 99.4%, with a rent collection rate of 99.5% for Q1 [24] Business Line Data and Key Metrics Changes - The company closed $70 million in acquisitions at a blended cap rate of 6.7% during Q1, marking the highest acquisition volume for a first quarter in the company's history [5][6] - A total of 23 properties were acquired for $57 million at a blended cap rate of 6.7%, with a weighted average lease term of 17 years [14] - The largest tenants include nationally branded restaurant operators, with significant same-store sales growth reported for brands like Chili's and Olive Garden [9][10] Market Data and Key Metrics Changes - The company has seen no material changes in cap rates for recently priced deals, indicating a stable market environment [6] - The portfolio has diversified significantly, with Darden's contribution to rent dropping from 100% to 47% [10] - The company has a strong liquidity position with approximately $617 million available for funding acquisitions [21] Company Strategy and Development Direction - The company aims to continue building its acquisition pipeline while maintaining high-quality asset selection and credit standards [15][18] - The focus remains on acquiring properties from well-capitalized operators, particularly in sectors with low tariff exposure [12][68] - The company is enhancing its underwriting capabilities and exploring new technologies to improve efficiency [81][84] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the portfolio's resilience amid potential economic downturns, citing strong rent coverage and high occupancy rates [12][68] - The company is well-positioned to navigate macroeconomic uncertainties, with significant liquidity and no near-term debt maturities [20][21] - Management noted that while they expect some pullback in tenant performance during a recession, the portfolio's structure provides a cushion [12][68] Other Important Information - The company has raised $475 million in equity through its ATM program since July of the previous year, achieving the lowest leverage levels in seven years [7] - The company has made significant progress in managing lease maturity profiles, with 88% of 2025 maturities already extended or indicating intent to do so [23] Q&A Session Summary Question: Is the slight yield compression due to increased competition for assets insulated from tariffs? - Management indicated that the majority of yield compression is related to the high percentage of QSR restaurant acquisitions in the quarter [25] Question: What is the governor on growth given the strong acquisition volumes? - Management stated that the type of acquisitions being pursued largely determines quarterly buying capacity, emphasizing quality over quantity [28][29] Question: How do you monitor the health of Burger King tenants after a franchisee bankruptcy? - Management clarified that the bankruptcy was a specific issue related to that franchisee and does not reflect broader concerns [35] Question: What is the range of EBITDAR coverage ratios for recent acquisitions? - Management noted that while they do not disclose coverage ratios quarterly, credit metrics are similar across industries, with coverage typically being three times or more [54] Question: How does the company view potential opportunities in a recession? - Management expressed confidence in the portfolio's performance during downturns, noting that they are well-capitalized and focused on finding high-quality deals [67][68]