Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Four Corners Property Trust Inc (FCPT, Financial) reported an increase in AFFO to $0.43 per share, up 2.4% from the previous year.
- The company's portfolio continues to perform well with high rent collections and occupancy rates.
- FCPT acquired 17 properties at a 7.2% cap rate, showing a 30-basis-point improvement from the previous quarter.
- The company maintains a strong balance sheet with a net debt to adjusted EBITDAre ratio of 5.7 times and a fixed charge coverage ratio of 4.3 times.
- FCPT's disciplined capital allocation strategy allows for accretive acquisitions while maintaining quality standards.
Negative Points
- The ongoing bankruptcy proceedings of Red Lobster pose a potential risk, although FCPT expects minimal disruption.
- There is exposure to potential credit issues with some tenants, such as a large Pizza Hut franchisee going bankrupt.
- The company faces a challenging investment environment with a high bid-ask spread between buyers and sellers.
- Interest rate fluctuations continue to impact cap rates and acquisition strategies.
- Despite strong performance, the company did not sell any properties in Q2, which could limit capital recycling opportunities.
Q & A Highlights
Q: Can you confirm if any of your Red Lobster stores are on the closure list?
A: We are not aware of any closures for our stores. Our conversations with Red Lobster have been productive, and the stores are performing well. - William Lenehan, CEO
Q: Do you have any exposure to the Pizza Hut franchisee EYM, which went bankrupt?
A: We have a couple of stores with them, but they are paying, and we have a personal guarantee from the founder. - William Lenehan, CEO
Q: With cap rates stabilizing, do you think we've seen the end of cap rates backing up?
A: It's hard to tell. There was a delay in cap rates going up, and it's uncertain what will happen next. Our focus is on high-quality properties. - William Lenehan, CEO
Q: What drove the increased acquisitions this quarter? Was it due to an improving cost of capital or greater seller willingness?
A: It's a combination of both. Our equity cost of capital has improved, and there's a buildup in market supply, allowing us to grow. - William Lenehan, CEO
Q: How does the health of franchises in your portfolio look, especially with some large franchises going bankrupt?
A: We have very little franchise exposure, and our portfolio is 99.8% occupied. We are in great shape. - William Lenehan, CEO
Q: Are you considering amending leases to flatten the maturity schedule or see it as an opportunity to re-price?
A: Most leases, especially Darden leases, are well-covered and expected to be extended according to contractual terms. - William Lenehan, CEO
Q: Have you considered a sale leaseback with Chuy's or other growth strategies with Darden?
A: We are in constant conversation with Darden and other tenants about supporting their growth. Chuy's has a strong brand with growth potential. - William Lenehan, CEO
Q: How does the math of a one-off Mavis deal compare to a portfolio?
A: There might be a 75-basis-point portfolio discount. Cap rates have moved significantly, but there's value in being a professional buyer. - Patrick Wernig, CFO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
