Four Corners Property Trust (FCPT) Reports Steady Increase in AFFO per Share and Record Year of Acquisitions
FCPT's Fourth Quarter 2023 Financial Results Conference Call highlights strong performance and strategic growth
In their Fourth Quarter 2023 Financial Results Conference Call, Four Corners Property Trust (FCPT) announced a steady increase in their adjusted funds from operations (AFFO) per share and a record year of acquisitions, showcasing their resilience and strategic growth amidst a challenging interest rate environment. CEO Bill Lenehan emphasized the company's disciplined approach to capital allocation and selective investment strategy.
Key Takeaways:
- AFFO per share rose by 4.9% to $0.43 compared to Q4 2022, indicating positive financial performance.
- FCPT deployed $333 million into acquisitions, with a focus on the medical retail, auto services, and restaurant sectors. This record year of acquisitions highlights the company's ability to identify and capitalize on favorable opportunities.
- The company reported an impressive 99.8% occupancy rate and collected 99.8% of base rent for the quarter, demonstrating the stability and strength of FCPT's portfolio.
- Cash rental revenue saw a significant YoY increase of 15.8%, further solidifying the company's financial performance.
- FCPT adjusted their acquisition strategy in the second half of the year due to rising interest rates, indicating a cautious approach to market conditions.
- By selling underperforming Red Lobster properties and renewing leases at higher rates, FCPT showcases their commitment to optimizing their portfolio and maximizing returns.
- FCPT currently holds $259 million in liquidity, providing them with a favorable position for future investment opportunities. Additionally, the company boasts a net debt to adjusted EBITDA ratio of 5.5x, indicating strong financial stability.
- CEO Bill Lenehan reiterated the company's disciplined capital allocation and selective acquisition strategy, emphasizing their commitment to long-term success.
Company Outlook:
Looking ahead, FCPT expects more favorable investment opportunities and attractive pricing in 2024. The company's investment pipeline is focused on high-quality deals, with consideration given to a range of deal sizes. FCPT remains steadfast in their focus on net lease properties with high-credit tenants and longer terms. The company anticipates that the percentage of medical and auto service assets in the investment pipeline will remain consistent.
Bearish Highlights:
FCPT experienced a slowdown in acquisition activity during the second half of the year due to higher interest rates. Additionally, current market conditions pose challenges in terms of funding potential deals.
Bullish Highlights:
Despite the challenges, FCPT has managed to find good deals at low 7 cap rates, aligning with the company's cost of capital. Furthermore, the company is confident in its decision to avoid investments in novel net lease assets with less secure credit, ensuring a more secure portfolio.
Misses:
There is a current gap between buyer and seller pricing in the market, which could impact future acquisitions.
Q&A Highlights:
During the Q&A session, Lenehan confirmed that there will be no changes in the criteria for the company's watch list. The CEO also highlighted the company's avoidance of properties with aggressive pricing, high rents, and small, unproven tenants.
In summary, FCPT's fourth-quarter performance demonstrated resilience and strategic growth in the face of rising interest rates. The company's disciplined approach to capital allocation and selective investment criteria, focusing on triple-net leases with high-credit tenants, positions them well for continued success. With a strong liquidity position and a keen awareness of market conditions, FCPT is poised to seize more favorable opportunities in the coming year.
Analyst comment
Positive news: FCPT reported a steady increase in AFFO per share, record acquisitions, high occupancy and rent collection rates. The company expects favorable investment opportunities in 2024. Bearish highlights include a slowdown in acquisitions due to rising interest rates and challenges in funding potential deals. Overall, FCPT’s disciplined approach and focus on high-credit tenants position it well for continued success. The market will likely respond positively, with potential growth in share price.
