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Four Corners Property Trust (FCPT) 1 Aug 24 2024 Q2 Earnings call transcript

AInvestFriday, Aug 2, 2024 6:05 pm ET
2min read

FCPT, a leading real estate investment trust specializing in single-tenant commercial properties, recently held its second quarter earnings call for 2024. The call, led by CEO Bill Lenehan, Director of Acquisitions Josh Zhang, and Manager of Investor Relations Patrick Wernig, provided valuable insights into the company's financial health, investment strategies, and market trends. Below are some key takeaways from the call.

Strong Performance and Portfolio Updates

FCPT reported a second quarter AFFO of $0.43 per share, representing a 2.4% increase from the previous year. The company's existing portfolio continues to perform exceptionally well, with higher rent collections and occupancy. The EBITDAR to rent coverage for the majority of their portfolio was 4.9x, demonstrating the company's strong financial position.

In terms of the restaurant industry, FCPT's portfolio of national brand operators, including Darden and Brinker, has shown positive performance. Darden reported a 4% increase in LongHorn and a modest 1.5% decline in same-store sales for Olive Garden, with an overall increase of 1.6% for fiscal year 2024. Brinker reported a 3.5% growth in Chili's same-store sales and a 90 basis point improvement in restaurant level EBITDA margin to 14.1%. These results underscore the strength and resilience of FCPT's restaurant sector investments.

Capital Allocation and Acquisition Strategies

FCPT continues to demonstrate disciplined capital allocation, with a focus on quality investments that enhance shareholder value. The company acquired 17 properties for $45.5 million at a 7.2% cap rate, marking a 30 basis point improvement from the previous quarter. These acquisitions were primarily split between auto service and medical retail properties. FCPT's largest transaction was a $20 million sale-leaseback of eight properties with Mavis Tire, demonstrating the company's ability to capitalize on attractive opportunities.

The company's capital sources include $2.4 million of equity issued in the second quarter and $85 million of term loans under their existing credit facility. FCPT maintains a conservative balance sheet, with a net debt to adjusted EBITDAre ratio of 5.7x and a healthy fixed charge coverage ratio of 4.3x. The company remains committed to a conservative approach, maintaining $240 million of liquidity and a disciplined underwriting process.

Market Trends and Outlook

FCPT's earnings call also highlighted broader market trends and the company's strategic positioning. The company has seen a buildup of supply in the net lease market, which they are well-positioned to capitalize on with their attractive sources of capital and disciplined underwriting approach. FCPT's focus on high-quality assets and strategic acquisitions positions them well for continued growth and value creation.

Addressing Challenges and Future Opportunities

The call also touched on potential challenges, including the ongoing bankruptcy proceedings of Red Lobster. However, FCPT remains optimistic about the situation, emphasizing the strength and profitability of their 18 Red Lobster locations. The company also noted their proactive communication with Red Lobster, ensuring minimal disruption to their tenants and investors.

In conclusion, FCPT's second quarter earnings call provided a comprehensive overview of the company's financial performance, investment strategies, and market positioning. The company's strong financial health, disciplined capital allocation, and strategic focus on high-quality assets position FCPT for continued growth and value creation. With a strategic outlook and a commitment to delivering value to shareholders, FCPT is well-positioned to navigate market trends and capitalize on attractive opportunities.

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