Business context and reporting period
Four Corners Property Trust, Inc. (NYSE: FCPT) filed this audited Form 10-K for the fiscal year ended December 31, 2020. FCPT is a REIT that primarily owns and leases restaurant and retail properties on a net-lease basis; it also operates six LongHorn Steakhouse restaurants through its Kerrow business. The filing reports full-year results, not standalone fourth-quarter results.
At year-end, the portfolio comprised 799 rental properties across 46 states, with 5.2 million square feet, 99.6% occupancy, a 10.2-year weighted-average remaining lease term and 1.44% average annual rent escalations through 2030. Investment-grade tenants represented 67.7% of annualized base rent.
Key financial metrics
| Metric | 2020 | 2019 |
|---|---|---|
| Total revenue | $170.9 million | $160.2 million |
| Rental revenue | $154.7 million | $139.7 million |
| Restaurant revenue | $16.2 million | $20.6 million |
| Net income | $77.6 million | $72.9 million |
| Net income available to common shareholders | $77.3 million | $72.6 million |
| Diluted EPS | $1.08 | $1.06 |
| Operating cash flow | $91.5 million | $104.7 million |
| Cash used in investing activities | $229.1 million | $207.4 million |
| FFO / diluted share | $1.49 | $1.44 |
| AFFO / diluted share | $1.44 | $1.39 |
Net margin was approximately 45.4% in 2020, versus 45.5% in 2019. At December 31, 2020, cash and cash equivalents were $11.1 million; gross debt was $760 million ($753.9 million net of deferred financing costs on the balance sheet); and unused revolving-credit capacity was $240 million. Total assets were $1.67 billion and total equity was $844.5 million. FCPT reported compliance with its debt covenants and no off-balance-sheet arrangements.
Dividends declared were $1.2325 per common share for 2020. The filing states a current annual dividend rate of $1.27 per share and says future distributions remain subject to Board approval.
Material changes versus the prior comparable period
- Revenue increased 6.7% and net income increased 6.3%; diluted EPS rose from $1.06 to $1.08.
- Rental revenue grew $15.0 million, mainly from a full year of contribution from 2019 acquisitions and 100 properties and ground leasehold interests acquired in 2020.
- Restaurant revenue fell $4.3 million, or about 21%, as COVID-19 restrictions reduced seating capacity at Kerrow’s restaurants.
- Operating cash flow decreased $13.2 million. Real estate investment cash outlays were $230.5 million, while acquisition activity totaled $227.3 million including capitalized transaction costs.
- Interest expense increased $2.7 million, primarily reflecting the $125 million of senior notes issued in 2020. Year-end debt increased from $677 million principal in 2019 to $760 million in 2020.
- FCPT sold 5.64 million shares through its ATM program for approximately $151.7 million net proceeds, funding acquisitions and general corporate purposes.
Outlook, commentary, risks and unusual items
- COVID-19 remained a material uncertainty. FCPT reported collection of more than 99% of contractual base rent for 2020. Approximately $1.0 million of second-quarter rent deferrals were fully repaid by year-end; approximately $1.6 million of rent abatements were recognized as lease incentives and will reduce revenue over amended lease terms. No fourth-quarter deferrals were agreed.
- Management provided no quantified earnings or acquisition guidance. It intends to pursue qualifying acquisitions, broaden the tenant base beyond Darden and maintain REIT status. Management cautioned that COVID-19 could affect tenant credit, collections, liquidity, access to capital and dividends; it may temporarily reduce cash dividends if conditions require.
- Tenant concentration is significant: Darden and Brinker represented approximately 65.6% and 8.4% of annual cash base rent, respectively. Olive Garden alone accounted for 48.9% of cash base rent. Non-Darden tenant EBITDAR coverage was not reported because some tenant data predated the pandemic.
- Debt includes $400 million of term loans, $10 million drawn on a $250 million revolver, and $350 million of senior notes. The revolving facility was scheduled to mature in November 2021, with a one-year extension option; term-loan maturities include $150 million in November 2022, $150 million in November 2023 and $100 million in March 2024. Management expected to extend or refinance the revolver before maturity.
- In March 2020, FCPT terminated two cash-flow hedges for an approximately $8.4 million loss, to be amortized as interest expense over ten years. Derivative liabilities were $18.7 million at year-end, versus $5.0 million a year earlier. No impairment provision was recorded in 2020.
- Other key risks include restaurant-sector exposure, geographic concentrations in Texas and Florida, tenant renewal and re-leasing risk, interest-rate and LIBOR transition exposure, environmental liabilities and REIT qualification requirements. Routine legal matters were not expected by management to have a material adverse effect.
Important facts for investors to verify
- Whether rent collection and tenant credit remain resilient as pandemic-related operating restrictions and relief arrangements change.
- Darden’s and Brinker’s financial condition, rent coverage and lease-renewal intentions, given their share of FCPT rent.
- Revolver extension or refinancing plans and the company’s capacity to meet term-loan maturities while funding acquisitions and dividends.
- Dividend coverage against AFFO, cash flow, debt covenants and REIT distribution requirements; the filing does not guarantee future dividend levels.
- Acquisition returns, tenant diversification, and whether reported occupancy and lease-term metrics remain representative as the portfolio grows.