Four Corners Property Trust, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; financial statements are unaudited. FCPT is a REIT focused on owning and leasing restaurant and retail properties, with a small restaurant-operating business.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Total revenue | $60.0 million | $54.4 million | +10.2% |
| Rental revenue | $52.2 million | $46.9 million | +11.3% |
| Restaurant revenue | $7.8 million | $7.5 million | +3.5% |
| Net income | $23.2 million | $22.3 million | +3.9% |
| Net income available to common shareholders | $23.1 million | $22.3 million | +3.9% |
| Diluted EPS | $0.27 | $0.28 | Down $0.01 |
| FFO per diluted share | $0.39 | $0.40 | Down $0.01 |
| AFFO per diluted share | $0.41 | $0.41 | Unchanged |
Net income margin was approximately 38.6%, compared with 41.0% a year earlier. Operating expenses rose 21.0% to $28.7 million, including higher depreciation, property expenses, and general and administrative costs. Interest expense increased $1.5 million to $9.9 million. Results included a $1.6 million gain from selling three properties; there were no property-sale gains in Q1 2022.
Operating cash flow was $37.9 million, versus $34.8 million. Investing activities used $10.4 million, including $20.9 million of property purchases partly offset by $11.5 million of sale proceeds. Financing activities used $22.5 million, including $29.1 million of shareholder dividends, partly offset by $8.9 million of net ATM proceeds. Cash and cash equivalents were $31.4 million at quarter end.
Balance sheet, debt, and liquidity
- Total assets were $2.20 billion and total equity was $1.13 billion at March 31, 2023.
- Long-term debt, net of financing costs, was $996.0 million; principal debt outstanding was $1.005 billion. Debt consisted of $430 million of term loans and $575 million of fixed-rate senior notes.
- No revolver borrowings were outstanding; $250 million of revolving capacity remained available. The company reported compliance with all debt covenants.
- Term loans are variable-rate debt; $350 million was hedged with interest-rate swaps. The weighted-average term-loan rate after hedges was 3.51% at quarter end.
- The quarterly dividend declared was $0.34 per share, up from $0.3325 in Q1 2022; the Q1 2023 dividend was paid in April.
Portfolio, changes, and outlook
- At March 31, the lease portfolio comprised 1,030 properties in 47 states, with 99.9% occupancy, an 8.0-year weighted average remaining lease term, and 61% investment-grade tenancy. FCPT reported collecting 99.9% of contractual base rent for the quarter.
- During Q1, FCPT acquired 10 net-lease properties for $20.9 million, with a 6.5-year weighted average remaining lease term, and sold three properties with a $9.3 million net book value.
- Management attributed rental-revenue growth mainly to 104 leased properties acquired over the year ended March 31, 2023, partially offset by 11 property dispositions. Higher interest expense reflected debt issuance and an increase in term-loan borrowings.
- After quarter end through May 2, FCPT acquired eight net-lease properties for $25.3 million at an approximately 7.0% investment yield and settled additional ATM forwards, issuing 935,741 shares for $25.0 million net proceeds.
- No formal earnings or acquisition guidance was provided. Management expects to fund ordinary needs primarily with operating cash flow and may use its revolver, debt, equity, or other financing for acquisitions and longer-term needs; access to capital on acceptable terms is not assured.
Risks, contingencies, and unusual items
- Tenant and brand concentration is significant: Darden leases represented approximately 54.1% of scheduled base rent; Olive Garden locations represented approximately 40.4% of lease revenue. Texas accounted for about 10.5% of rental revenue.
- Interest-rate exposure remains despite hedging. Derivative fair value changes reduced other comprehensive income by $7.7 million in Q1, versus a $15.4 million gain in Q1 2022; these are not equivalent to current-period cash flows.
- Management said ordinary-course legal claims are not expected to have a material adverse effect. No material changes to previously disclosed risk factors were reported, and no impairment expense was recorded in either quarter.
- FCPT’s REIT status depends on meeting applicable requirements, including distributing at least 90% of REIT taxable income, subject to statutory adjustments.
Important facts for investors to verify
- How tenant concentration—especially Darden and Olive Garden—affects rent durability and renewal risk.
- Whether acquisition yields and portfolio growth can offset higher borrowing costs and continued expense growth.
- The amount, timing, and dilution effects of remaining ATM forward settlements, and financing needs around scheduled debt maturities.
- Whether AFFO and operating cash flow adequately support the dividend and planned investment activity; AFFO is a non-GAAP measure and may not be comparable across REITs.
- Changes in interest rates, swap coverage, tenant credit quality, occupancy, and the performance of the Kerrow restaurant operations.