Four Corners Property Trust, Inc. — FY 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual filing; the supplied text does not provide separate fourth-quarter results.
Business context
FCPT is a REIT that primarily owns and leases restaurant and retail properties under net leases, with tenants generally responsible for property operating costs. It also operates seven LongHorn Steakhouse restaurants through its Kerrow business. At year-end, its leasing portfolio comprised 1,111 properties across 47 states, with 7.5 million square feet, 99.8% occupancy, a 7.8-year weighted average remaining lease term, and 1.4% average annual rent escalations through 2028.
Financial and operating performance
| Metric | FY 2023 | FY 2022 |
|---|---|---|
| Total revenue | $250.6 million | $223.2 million |
| Rental revenue | $219.9 million | $193.6 million |
| Restaurant revenue | $30.7 million | $29.6 million |
| Net income | $95.5 million | $97.9 million |
| Net income available to common shareholders | $95.3 million | $97.8 million |
| Diluted EPS | $1.07 | $1.20 |
| Interest expense | $44.6 million | $36.4 million |
| Cash provided by operating activities | $165.1 million | $142.0 million |
| Investments in real estate | $341.1 million | $296.3 million |
| FFO / diluted share | $143.7 million / $1.62 | $131.1 million / $1.60 |
| AFFO / diluted share | $148.7 million / $1.67 | $134.0 million / $1.64 |
Rental revenue growth reflected a full year of contribution from 2022 acquisitions and 92 properties acquired in 2023. Higher interest and depreciation costs, and a lower gain on property sales, contributed to lower net income. Net income margin, calculated as net income divided by revenue, was approximately 38.1%, versus 43.9% in 2022. FCPT reported that it collected 99.9% of contractual base rent for 2023.
Operating cash flow was $165.1 million; investing activities used $312.8 million and financing activities provided $146.2 million. Year-end cash and cash equivalents were $16.3 million; a further $8.5 million of restricted cash was included in other assets.
At December 31, debt principal totaled $1.121 billion: $430 million in term loans, $16 million drawn on the revolver, and $675 million of senior unsecured notes. The balance sheet reported debt net of financing costs of approximately $1.113 billion. The revolver had $234 million of undrawn capacity at year-end, or $215 million as of February 15, 2024. FCPT was in compliance with debt covenants and held investment-grade ratings of BBB from Fitch and Baa3 from Moody’s.
Material changes versus FY 2022
- Revenue rose 12.3%, while net income fell 2.5% and diluted EPS declined from $1.20 to $1.07.
- Interest expense increased $8.2 million, reflecting additional debt issuance and higher rates on unhedged variable-rate borrowing.
- FCPT acquired 92 properties and ground leasehold interests for $341.1 million, compared with 112 properties acquired for $296.3 million in 2022. It sold seven properties, generating a $2.3 million gain, versus eight sales and an $8.1 million gain in 2022.
- FCPT issued 5.8 million shares through its ATM program for net proceeds of $153.4 million, compared with $141.8 million in 2022. Shares outstanding increased to 91.6 million from 85.6 million.
- Senior notes increased by $100 million with a new 6.44% note due 2033. The company also had $16 million outstanding on its revolver at year-end, versus none in 2022.
Outlook, risks and unusual items
The filing provides no specific earnings or acquisition guidance. Management says it will pursue acquisitions that meet its return and financing objectives, seek to broaden tenant and property-type diversity, and maintain balance-sheet flexibility and quarterly dividends. The stated annualized dividend rate was $1.365 per share; future dividends remain subject to Board approval and operating, financing, and REIT distribution requirements.
Tenant concentration remains a key risk: Darden represented 51.7% of annual cash base rent and Brinker 7.8%; Olive Garden represented 37.1% of portfolio cash base rent. FCPT identifies tenant performance, restaurant-industry exposure, interest rates, inflation, refinancing needs, acquisitions, property re-leasing, environmental and climate-related exposure, and REIT qualification as material risks. Average rent escalations of 1.4% may not fully offset inflation.
In 2023, terminated interest-rate hedges associated with a $100 million note issuance generated an approximately $8.1 million gain, to be amortized over the note’s 10-year term as a reduction to interest expense. No impairment provisions were recorded in 2021–2023. Management reported effective disclosure controls and internal control over financial reporting; the auditor issued unqualified opinions on the financial statements and internal controls. Ordinary-course litigation was not expected by management to have a material adverse effect.
After year-end through February 15, 2024, FCPT invested $13.9 million in three net-lease properties, funded with cash on hand; the reported investment yield was approximately 6.8% and remaining lease term approximately 11.1 years.
Important facts for investors to verify
- Review Darden’s and Brinker’s financial condition and lease coverage, given their combined 59.5% share of annual cash base rent.
- Assess the 2024 $50 million note maturity and scheduled debt maturities, including the $166 million scheduled for 2025, alongside refinancing plans and available liquidity.
- Compare AFFO per share with the $1.365 annualized dividend and examine cash needs for acquisitions, debt service, and distributions.
- Track variable-rate exposure and hedge coverage: $446 million of variable-rate debt was reported before swaps, with $375 million hedged.
- Evaluate acquisition returns, tenant credit quality, portfolio diversification, and whether rent escalations and lease renewals can sustain real income growth.