Four Corners Property Trust, Inc. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; filed February 26, 2020. The filing reports full-year results and selected quarterly data, including fourth-quarter results, rather than a standalone Q4 report.
Business context
FCPT is a REIT that primarily owns and leases restaurant and retail properties under net leases; it also operates six LongHorn Steakhouse restaurants through its Kerrow business. At year-end, its leased portfolio comprised 699 properties across 46 states, with 99.7% occupancy, an 11.1-year weighted average remaining lease term, and 72% investment-grade tenancy by annualized base rent. Olive Garden accounted for 53.2% of portfolio cash base rent. Darden represented approximately 71% and Brinker approximately 9% of annual cash base rent.
Financial performance and position
| Metric | 2019 | 2018 | Change / context |
|---|---|---|---|
| Total revenue | $160.2 million | $143.6 million | Up 11.6% |
| Rental revenue | $139.7 million | $123.7 million | Up $16.0 million, principally from acquisitions |
| Net income available to common shareholders | $72.6 million | $82.4 million | Down 11.9% |
| Diluted EPS | $1.06 | $1.28 | Down 17.2% |
| Operating cash flow | $104.7 million | $80.9 million | Up 29.4% |
| FFO per diluted share | $1.44 | $1.41 | Up 2.1% |
| AFFO per diluted share | $1.39 | $1.36 | Up 2.2% |
| Cash dividends declared per share | $1.1675 | $1.1125 | Up 4.9%; Q4 declaration was $0.305 per share |
GAAP net income margin was approximately 45.5%, versus 57.7% in 2018; the comparison is affected by $15.3 million of property-sale gains recognized in 2018 and none in 2019. Interest expense increased by $6.5 million to $26.5 million, mainly reflecting a full year of interest on notes issued in December 2018 and higher term-loan interest. The six-restaurant operating segment generated $20.6 million revenue and $0.5 million net operating contribution before corporate items, compared with $20.0 million and $0.6 million in 2018.
At December 31, 2019, assets were $1.446 billion, liabilities $719.3 million, and equity $726.7 million. Gross debt was $677 million: $400 million of term loans, $52 million drawn on the revolver, and $225 million of fixed-rate notes. Cash was $5.1 million, with $198 million of revolver capacity available. The company reported compliance with debt covenants. Cash used in investing was $207.4 million, including $205.2 million invested in acquisitions; financing cash flow was $14.5 million.
Changes, outlook, risks and unusual items
- FCPT acquired 90 properties and ground leasehold interests in 2019 for $205.2 million, expanding its portfolio and non-Darden tenant base. Rental growth also reflected a full year of revenue from 97 properties acquired in 2018.
- Net income declined despite revenue growth, reflecting the absence of prior-year sale gains and higher interest and depreciation expense. There were no property sales or impairment charges in 2019; 2018 included $15.3 million of net sale gains and $1.5 million of impairment expense.
- The company adopted lease accounting standard ASC 842 effective January 1, 2019; the filing says adoption did not materially change prior financial results or equity. Certain initial lease costs became expenses, contributing to higher property expense.
- Management intends to continue acquisitions and diversify beyond Darden, but provided no specific earnings or acquisition guidance. It reported $27.3 million invested in 17 properties through February 25, 2020, funded with revolver borrowings and cash.
- Key risks include tenant and brand concentration, particularly dependence on Darden and Olive Garden; tenant credit and lease renewal risk; restaurant-industry and economic exposure; interest-rate and LIBOR-transition risk; refinancing and debt-covenant constraints; property, environmental, casualty and climate risks; and maintaining REIT qualification and required distributions. Leases generally pass property operating costs to tenants, but indemnities may not fully protect FCPT if a tenant cannot pay.
- The auditor gave unqualified opinions on the financial statements and internal controls. The assessment of long-lived-asset impairment was identified as a critical audit matter. Management said ordinary-course legal matters were not expected to have a material adverse effect.
Most important facts for investors to verify
- Tenant exposure and credit: Darden’s ability to meet obligations, the stated 71% rent concentration, and tenant operating coverage data, which FCPT says it does not independently verify.
- Acquisition economics: returns and financing costs on 2019 purchases, and whether continued growth can reduce tenant concentration without weakening underwriting.
- Cash available for distributions: reconcile GAAP earnings, FFO/AFFO, operating cash flow, acquisition spending and the $1.1675 declared 2019 dividend; non-GAAP measures are not substitutes for cash flow.
- Debt and liquidity: verify revolver availability, maturities, covenant headroom, variable-rate exposure and hedge effectiveness; the filing also identifies LIBOR transition uncertainty.
- Portfolio and accounting details: reconcile reported portfolio counts where needed, and assess lease renewal/tenant rollover exposure, ASC 842 effects and impairment assumptions.