Four Corners Property Trust, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; comparisons are with the corresponding 2020 periods. Amounts are in U.S. dollars. FCPT is a REIT focused primarily on owning and leasing restaurant and retail properties; it also operates the Kerrow restaurant business.
Business context and operating metrics
At June 30, FCPT reported 833 portfolio properties in 46 states, 99.7% occupancy by leasable area, and a 10-year average remaining lease term weighted by annualized base rent. During the first half, it acquired 36 properties and invested in construction of a LongHorn Steakhouse that opened in April.
Financial performance
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Total revenue | $49.3m | $40.9m | $96.0m | $83.4m |
| Rental revenue | $42.2m | $38.0m | $83.7m | $75.8m |
| Restaurant revenue | $7.1m | $2.9m | $12.3m | $7.6m |
| Net income | $20.2m | $18.5m | $40.8m | $37.9m |
| Net income available to common shareholders | $20.1m | $18.5m | $40.7m | $37.7m |
| Diluted EPS | $0.26 | $0.26 | $0.53 | $0.54 |
| Operating cash flow | Not presented separately | Not presented separately | $58.9m | $36.7m |
Q2 revenue increased 20.4% year over year and net income increased 9.0%; first-half revenue rose 15.2% and net income rose 7.8%. Rental revenue grew 10.9% in Q2 and 10.5% in the first half, primarily reflecting property acquisitions. Restaurant revenue increased as dining restrictions eased. The seven-store operating business had a small profit in both 2021 periods, versus losses in 2020.
Operating expenses were $20.6m in Q2 and $39.5m in the first half, including higher depreciation, general and administrative expense, and restaurant costs. Interest expense was $8.4m in Q2 and $16.0m in the first half, up from $7.3m and $14.3m, respectively. Diluted EPS was flat for Q2 and lower for the first half, while weighted-average diluted shares increased about 8% year over year in both comparisons.
First-half NAREIT FFO was $57.0m, or $0.75 per diluted share, versus $52.0m, or $0.74. AFFO was $57.9m, or $0.76 per diluted share, versus $49.4m, or $0.70. These are non-GAAP supplemental measures and are not substitutes for GAAP earnings or operating cash flow. Dividends declared were $0.3175 per share quarterly, or $0.6350 for the first half, compared with $0.6100 in the prior-year half.
Cash flow, debt and liquidity
First-half cash provided by operations was $58.9m; investing used $81.5m, including $84.3m of real estate purchases and $3.3m of sale proceeds; financing provided $38.7m. Cash increased to $27.1m from $11.1m at year-end 2020. Dividends paid to shareholders were $48.2m.
At June 30, net carrying value of long-term debt was $840.7m; principal consisted of $400m of term loans and $450m of senior notes. No revolving credit borrowings were outstanding, leaving $250m of revolver capacity. The company reported compliance with debt covenants. In June, it amended and extended its credit facility, including extending revolver maturity to November 2025, and issued $100m of fixed-rate notes at 2.74% and 2.99%, due in 2029 and 2031. The term loans are variable-rate; $350m of variable-rate debt was hedged with swaps. The filing estimates $6.8m of accumulated derivative amounts will be reclassified as an increase to interest expense over the next 12 months.
Changes, outlook and risks
- FCPT collected over 99% of portfolio contractual base rent during the first half. It reported no rent deferrals in Q4 2020 or the first half of 2021; prior-year COVID-related deferrals were repaid by year-end 2020.
- Management said COVID-19 could continue to affect tenants and managed restaurants, rent-paying capacity, occupancy, capital markets access, liquidity, and covenant compliance. It provided no quantified earnings or acquisition guidance. It intends to maintain REIT status and expects to use operating cash flow for ordinary needs and debt or equity financing and asset sales for longer-term capital needs.
- Tenant and brand concentration is material: Darden accounts for approximately 63% of scheduled base rent; Olive Garden locations represent approximately 47% of lease revenue. Texas and Florida each account for about 11% of rental revenue.
- LIBOR transition creates uncertainty for variable-rate loans and swaps. FCPT disclosed no impairment expense in either first-half comparison and no material change to previously disclosed risk factors. Routine litigation was not expected to materially affect financial position, results, or liquidity.
- Through August 5, 2021, FCPT reported $33.1m invested in 17 additional net-lease properties, funded with cash on hand.
Important facts for investors to verify
- Reconcile the first-half 2021 common-shareholder income figures: the financial statements report $40.717m, while the MD&A results table reports $40.286m.
- Reconcile acquisition investment disclosures: Note 4 reports $84.4m including transaction costs for the first half, while the overview in MD&A reports $82.1m.
- Review Darden and Olive Garden concentration, tenant rent coverage and collections, and the continuing effects of COVID-19 on tenant credit and renewals.
- Assess debt maturities, variable-rate exposure, hedge balances and the LIBOR transition, alongside the $250m revolver capacity and covenant headroom.
- Consider dividend coverage using cash flow and the company’s AFFO methodology; AFFO is a company-defined non-GAAP measure.