FCPT Bolsters Financial Flexibility with Credit Facility Expansion and Extension

FCPT, a leading real estate investment trust (REIT) specializing in high-quality, net-leased restaurant and retail properties, has announced a significant upsizing and extension of its unsecured credit facility. This strategic move enhances the company's financial flexibility and risk profile, positioning it for growth and market opportunities. Let's delve into the key aspects of this transaction and its implications for FCPT's acquisition strategy and cost of capital.



1. Enhanced Liquidity for Opportunistic Acquisitions:
- The 40% expansion of the revolving credit facility to $350 million significantly bolsters FCPT's financial flexibility, providing ample capacity for opportunistic acquisitions in the net lease retail space. (Source: "Enhanced Liquidity: The 40% expansion of the revolving credit facility to $350 million significantly bolsters FCPT's financial flexibility, providing ample capacity for opportunistic acquisitions in the net lease retail space.")
- This increased liquidity allows FCPT to quickly capitalize on attractive investment opportunities as they arise, enabling the company to grow its portfolio more aggressively.

2. Addressing Near-Term Debt Maturities:
- By refinancing $150 million of 2025 maturities and securing extension options, FCPT has effectively eliminated any significant debt maturities until 2027. (Source: "Proactive Maturity Management: By refinancing $150 million of 2025 maturities and securing extension options, FCPT has effectively eliminated any significant debt maturities until 2027.")
- This proactive approach to maturity management ensures that FCPT has sufficient capital to pursue acquisitions without the risk of being constrained by near-term debt obligations.

3. Attractive Interest Rates for New Capital:
- The new $75 million interest rate swap at 3.6% plus a 0.95% credit spread demonstrates astute risk management, locking in attractive rates for the additional Term Loan. (Source: "Prudent Interest Rate Management: The new $75 million interest rate swap at 3.6% plus a 0.95% credit spread demonstrates astute risk management, locking in attractive rates while maintaining a well-hedged debt portfolio with 86% of term loans hedged through late 2026.")
- These attractive interest rates for the new capital will help FCPT maintain a conservative financial profile while pursuing growth opportunities.

The conversion from LIBOR to SOFR-based borrowings affects FCPT's interest expense and overall cost of capital by introducing a new reference rate for calculating interest payments. SOFR (Secured Overnight Financing Rate) is a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities. This change impacts the interest expense and cost of capital in the following ways:

1. Interest Expense: The interest expense on FCPT's term loans is now calculated based on SOFR plus a credit spread, which is determined by the company's current investment grade ratings. According to the provided information, the credit spread is 95 basis points on $180 million of the term loans and 100 basis points on $250 million of term loans, averaging 97.9 basis points. This means that the interest expense on the term loans is now calculated as follows:
- Hedged rate: SOFR + 10 bps + 97.9 bps
- Unhedged rate: SOFR + 10 bps + 97.9 bps

2. Cost of Capital: The conversion to SOFR-based borrowings may affect the overall cost of capital for FCPT. The cost of capital is a weighted average of the cost of debt and the cost of equity. Since the interest expense on the term loans has changed, the cost of debt may also change, which in turn affects the weighted average cost of capital. However, the exact impact on the cost of capital would depend on the specific weights assigned to the cost of debt and the cost of equity in the company's capital structure.

In summary, the expanded revolving credit facility and the new term loan have significant strategic implications for FCPT's acquisition strategy, providing increased liquidity, improved debt maturity management, and attractive interest rates. The conversion from LIBOR to SOFR-based borrowings affects FCPT's interest expense and overall cost of capital by introducing a new reference rate for calculating interest payments. This change may impact the overall cost of capital, depending on the specific weights assigned to the cost of debt and the cost of equity in the company's capital structure.