Four Corners Property Trust, Inc. — Q1 2024 Form 10-Q
Business context and period. FCPT is a REIT that owns and leases restaurant and retail properties, primarily under net leases, and operates seven LongHorn Steakhouse restaurants in Texas. This unaudited report covers the three months ended March 31, 2024, compared with Q1 2023.
Key financial results
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Total revenue | $66.5 million | $60.0 million | +10.9% |
| Rental revenue | $58.6 million | $52.2 million | +12.2% |
| Net income | $24.1 million | $23.2 million | +4.0% |
| Net income available to common shareholders | $24.0 million | $23.1 million | +4.0% |
| Diluted EPS | $0.26 | $0.27 | Down $0.01 |
| Net cash from operating activities | $27.6 million | $37.9 million | Down $10.3 million |
| FFO per diluted share | $0.41 | $0.39 | +5.1% |
| AFFO per diluted share | $0.43 | $0.41 | +4.9% |
Net income margin was approximately 36.2%, compared with 38.6% a year earlier. The prior-year period included a $1.6 million property-sale gain; Q1 2024 had no property-sale gain. Interest expense rose to $12.3 million from $9.9 million. The company declared dividends of $0.345 per share, versus $0.340.
At March 31, 2024, total assets were $2.46 billion and equity was $1.26 billion. Debt principal was $1.14 billion ($1.131 billion net of deferred financing costs), compared with $1.105 billion principal at year-end 2023. Cash and cash equivalents were $26.1 million; the company also had $250 million available on its revolver and no revolver borrowings. The weighted-average term-loan rate after hedging was 3.80%. Management reported compliance with all debt covenants.
Material changes and operating developments
- Rental revenue grew primarily following acquisitions of 89 leased properties over the year ended March 31, 2024, partly offset by four dispositions. In Q1, FCPT acquired four properties for $16.7 million; they were fully occupied and had a weighted-average remaining lease term of 9.9 years.
- Portfolio metrics at quarter-end: 1,115 properties in 47 states, 99.6% occupancy, 7.6-year average remaining lease term, 1.4% average annual rent escalation through 2029, 99.7% of contractual base rent collected during the quarter, and 59.5% investment-grade tenancy, weighted by annualized base rent.
- Restaurant revenue increased 1.8%, while restaurant expenses rose 3.7%, primarily from higher food costs and labor costs.
- FCPT entered into an $85 million term loan in March 2024, maturing in March 2027 with a conditional one-year extension. It repaid $50 million of senior notes during the quarter. A $50 million senior note was due in June 2024 at year-end 2023 and is no longer outstanding at quarter-end.
- Subsequent to quarter-end and through May 2, the company invested $8.9 million in two net-lease properties, funded with cash on hand; the reported approximate investment yield was 7.1%.
Outlook, risks and contingencies
No specific earnings or acquisition guidance was provided. Management expects to fund operating needs, distributions, debt service and capital requirements primarily with operating cash flow, and expects to use the revolver for acquisitions and other investments. Long-term capital needs may be met through debt, equity or asset-level financing; access to acceptable financing terms is not assured. Management says net leases mitigate exposure to rising property operating costs, while interest rates, occupancy, rent levels and tenant financial health are more significant performance factors.
- Tenant and brand concentration: Darden represents approximately 51.4% of scheduled base rent. Olive Garden accounts for approximately 36.8% of revenue received under leases; LongHorn Steakhouse accounts for approximately 10.4%.
- Interest-rate and refinancing exposure: $515 million of term loans are variable-rate before hedging. The revolver matures in November 2025, with a conditional six-month extension; scheduled principal payments include $150 million in 2025 and $250 million in 2027.
- Cash flow: Operating cash flow declined year over year, including changes in other assets and liabilities and rent received in advance. Investing activity used $16.4 million and financing activity used $9.2 million in Q1.
- Contingencies: The company reported ordinary-course litigation and believes the matters will not have a material adverse effect. No impairment expense or properties held for sale were reported in the quarter. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Whether rent collections, occupancy and tenant credit remain stable, particularly for Darden and Olive Garden exposure.
- How acquisition growth and any further dispositions affect rent growth, portfolio diversification and per-share results.
- Whether operating cash flow supports dividends and planned investments, given its decline year over year and the $0.345 quarterly dividend.
- Debt refinancing needs, interest-rate hedge coverage and financing availability ahead of the 2025 revolver maturity and scheduled principal payments.
- The sustainability of AFFO and FFO growth; these are non-GAAP measures and may not be comparable with other REITs.