Four Corners Property Trust, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022; unaudited. Comparisons are with the corresponding 2021 periods. FCPT is a REIT focused primarily on owning and leasing restaurant and retail properties, with a small restaurant operating business.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $55.4 million | $49.3 million | $109.8 million | $96.0 million |
| Net income | $28.2 million | $20.2 million | $50.5 million | $40.8 million |
| Net income available to common shareholders | $28.1 million | $20.1 million | $50.4 million | $40.7 million |
| Diluted EPS | $0.35 | $0.26 | $0.63 | $0.53 |
| NAREIT FFO | $32.5 million | $28.5 million | $64.5 million | $57.0 million |
| AFFO | $33.0 million | $29.1 million | $65.9 million | $57.9 million |
| Diluted FFO / AFFO per share | $0.40 / $0.41 | $0.37 / $0.38 | $0.80 / $0.82 | $0.75 / $0.76 |
Q2 revenue increased 12.5%; six-month revenue increased 14.4%. Rental revenue rose 13.6% in Q2 and 13.3% for the six months, primarily reflecting property acquisitions. Restaurant revenue increased 5.8% in Q2 and 21.7% for the six months, mainly from improved staffing and traffic and the addition of a seventh LongHorn Steakhouse. Net income growth also benefited from a $5.8 million gain on sale of three properties; FFO excludes the gain.
Six-month operating cash flow was $65.2 million, versus $58.9 million in 2021. Investing activities used $87.8 million, including $99.4 million invested in 44 properties; financing activities provided $37.9 million. Dividends paid were $53.3 million. The quarterly dividend declared was $0.3325 per share, compared with $0.3175 a year earlier.
Balance sheet, debt and liquidity
- At June 30, 2022, total assets were $2.01 billion, total liabilities $1.02 billion, and equity $991.5 million. Real estate investments, net, were $1.79 billion.
- Long-term debt, net of financing costs, was $966.5 million; principal debt consisted of $400 million in term loans and $575 million in senior notes. No revolver borrowings were outstanding, with $250 million available. Cash and cash equivalents were $17.7 million; cash, cash equivalents and restricted cash totaled $21.6 million.
- The term loans were variable-rate debt, with $350 million hedged by interest-rate swaps. The weighted-average term-loan rate after hedges was 2.86%. FCPT reported compliance with debt covenants and a Moody’s Baa3 stable rating on its senior unsecured revolving and term loan facility.
- The company issued $125 million of fixed-rate notes in March 2022, at 3.09% and 3.11%, with maturities in 2031 and 2032. Debt increased from year-end, while revolver borrowings fell from $36 million to zero.
Portfolio, changes and management commentary
At quarter-end, the lease portfolio comprised 960 properties in 47 states, with 99.9% occupancy, an 8.8-year average remaining lease term and average annual rent escalations of 1.45% through 2027. The 44 properties acquired in the first half were fully occupied under net leases, with a 6.5-year weighted-average remaining term. Through July 28, FCPT reported investing $20.2 million in six additional properties, at an approximate 6.5% investment yield and 11.4 years of remaining lease term.
FCPT collected 99.9% of contractual base rent for the first half and reported no rent abatements or deferrals during that period. Management expects to fund operating needs and distributions primarily from operating cash flow, and acquisitions through available borrowing capacity and other financing. It expects to settle remaining ATM forward-sale agreements by January 2, 2023. Through July 28, it had settled a portion, issuing 915,532 shares for $24.6 million in net proceeds. The filing provides no specific earnings or full-year acquisition guidance.
Risks, contingencies and unusual items
- Tenant and brand concentration: Darden leases represented approximately 57.5% of scheduled base rent. Olive Garden represented approximately 42.9% of lease revenue; LongHorn Steakhouse represented approximately 12.2%. These concentrations expose FCPT to tenant and restaurant-brand operating performance.
- Interest-rate and benchmark-transition risk: $350 million of variable-rate debt was hedged with swaps indexed to LIBOR. LIBOR was expected to cease publication after June 30, 2023; the company was monitoring transition risks.
- Three property sales generated a $5.8 million gain in Q2 and the first half; no impairment expense was recorded in the first half.
- Ordinary-course legal claims were not expected by management to have a material adverse effect. FCPT reported no material changes to its previously disclosed risk factors, no off-balance-sheet arrangements, and effective disclosure controls.
- FCPT’s REIT status depends on meeting tax requirements, including distributing at least 90% of REIT taxable income, subject to applicable adjustments.
Important facts for investors to verify
- Whether tenant and brand concentration, especially Darden and Olive Garden, remains consistent with current portfolio disclosures and tenant financial performance.
- How rental growth and FFO/AFFO growth compare with acquisition spending, share issuance and the per-share impact of dilution.
- Current debt costs, hedge coverage and LIBOR-to-alternative-rate transition terms, including maturities and covenant headroom.
- Whether operating cash flow continues to cover dividends and recurring capital needs; FFO and AFFO are non-GAAP measures, not substitutes for cash flow.
- Completion economics of the post-quarter acquisitions and ATM forward settlements, including final proceeds and share-count effects.