Four Corners Property Trust, Inc 10-Q for FY2024 Q3
Four Corners Property Trust, Inc. (FCPT)
About this 10-Q
Four Corners Property Trust, Inc filed this 10-Q on October 31, 2024, covering the quarter ended September 30, 2024 (FY2024 Q3).
Headline figures
Quarter ended September 30, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $66.79M
- up 3.0% from $64.84M a year earlier
- Net income
- $25.58M
- up 5.9% from net income of $24.16M a year earlier
- Diluted EPS
- $0.27
- unchanged from $0.27 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol |
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Name of Exchange on Which Registered |
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Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐Yes
Number of shares of common stock outstanding as of October 31, 2024:
FOUR CORNERS PROPERTY TRUST, INC.
FORM 10 - Q
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024
TABLE OF CONTENTS
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Part I |
FINANCIAL INFORMATION |
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Item 1. |
Financial Statements: |
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Consolidated Balance Sheets at September 30, 2024 (unaudited) and December 31, 2023 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
35 |
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Item 4. |
35 |
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Part II |
OTHER INFORMATION |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
36 |
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Item 4. |
36 |
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Item 5. |
36 |
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Item 6. |
37 |
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37 |
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38 |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FOUR CORNERS PROPERTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
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September 30, |
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December 31, |
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(Unaudited) |
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ASSETS |
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Real estate investments: |
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Land |
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$ |
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$ |
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Buildings, equipment and improvements |
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Total real estate investments |
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Less: Accumulated depreciation |
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Total real estate investments, net |
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Intangible lease assets, net |
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Total real estate investments and intangible lease assets, net |
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Cash and cash equivalents |
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Straight-line rent adjustment |
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Derivative assets |
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Deferred tax assets |
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Other assets |
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Total Assets |
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$ |
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$ |
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LIABILITIES AND EQUITY |
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Liabilities: |
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Term loan and revolving credit facility, net of deferred financing costs |
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$ |
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$ |
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Senior unsecured notes, net of deferred financing costs |
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Dividends payable |
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Rent received in advance |
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Derivative liabilities |
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Other liabilities |
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Total liabilities |
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Equity: |
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Preferred stock, par value |
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Common stock, par value |
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Additional paid-in capital |
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Accumulated deficit |
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Accumulated other comprehensive income |
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Noncontrolling interest |
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Total equity |
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Total Liabilities and Equity |
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$ |
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$ |
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The accompanying notes are an integral part of this financial statement.
1
FOUR CORNERS PROPERTY TRUST, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share and per share data)
(Unaudited)
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Three Months Ended |
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Nine Months Ended |
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2024 |
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2023 |
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2024 |
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2023 |
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Revenues: |
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Rental revenue |
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$ |
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$ |
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$ |
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$ |
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Restaurant revenue |
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Total revenues |
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Operating expenses: |
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General and administrative |
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Depreciation and amortization |
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Property expenses |
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Restaurant expenses |
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Total operating expenses |
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Interest expense |
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Other income |
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Realized gain on sale, net |
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Income tax (expense) benefit |
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( |
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( |
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Net income |
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Net income attributable to noncontrolling interest |
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( |
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( |
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( |
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Net Income Available to Common Shareholders |
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$ |
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$ |
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$ |
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$ |
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Basic net income per share: |
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$ |
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$ |
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$ |
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$ |
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Diluted net income per share: |
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$ |
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$ |
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$ |
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$ |
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Weighted average number of common shares outstanding: |
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Basic |
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Diluted |
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Dividends declared per common share |
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$ |
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$ |
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$ |
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$ |
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The accompanying notes are an integral part of this financial statement.
2
FOUR CORNERS PROPERTY TRUST, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, except for share and per share data)
(Unaudited)
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Three Months Ended |
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Nine Months Ended |
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2024 |
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2023 |
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2024 |
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2023 |
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Net income |
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$ |
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$ |
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$ |
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$ |
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Other comprehensive income: |
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Effective portion of change in fair value of derivative instruments |
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( |
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Reclassification adjustment of derivative instruments included in net income |
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( |
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( |
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( |
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( |
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Other comprehensive income |
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( |
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( |
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Comprehensive income |
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Less: comprehensive income attributable to noncontrolling interest |
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Net income attributable to noncontrolling interest |
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Other comprehensive income attributable to noncontrolling interest |
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( |
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( |
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Comprehensive income attributable to noncontrolling interest |
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Comprehensive Income Attributable to Common Shareholders |
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$ |
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$ |
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$ |
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$ |
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The accompanying notes are an integral part of this financial statement.
3
FOUR CORNERS PROPERTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands, except share data)
(Unaudited)
For the Three Months Ended September 30, 2024
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Common Stock |
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Additional |
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Retained |
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Accumulated |
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Shares |
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Par |
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Paid-in |
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(Accumulated |
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Income |
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Noncontrolling |
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Total |
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Balance at June 30, 2024 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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$ |
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Net income |
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— |
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— |
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— |
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— |
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Other comprehensive income |
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— |
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— |
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— |
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— |
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( |
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( |
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( |
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ATM proceeds, net of issuance costs |
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— |
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— |
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— |
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Dividends and distributions to equity holders |
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— |
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— |
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— |
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( |
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— |
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( |
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( |
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Stock-based compensation, net |
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( |
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— |
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— |
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— |
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— |
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Balance at September 30, 2024 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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$ |
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For the Nine Months Ended September 30, 2024
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Common Stock |
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Additional |
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Retained |
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Accumulated |
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Shares |
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Par |
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Paid-in |
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(Accumulated |
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Income |
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Noncontrolling |
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Total |
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Balance at December 31, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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$ |
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Net income |
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— |
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— |
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— |
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— |
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Other comprehensive income |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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( |
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ATM proceeds, net of issuance costs |
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— |
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— |
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— |
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Dividends and distributions to equity holders |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
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( |
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Stock-based compensation, net |
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— |
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— |
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— |
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— |
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Balance at September 30, 2024 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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$ |
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The accompanying notes are an integral part of this financial statement.
4
For the Three Months Ended September 30, 2023
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Common Stock |
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Additional |
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Retained |
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Accumulated |
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Shares |
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Par |
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Paid-in |
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(Accumulated |
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Income |
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Noncontrolling |
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Total |
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Balance at June 30, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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$ |
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Net income |
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— |
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— |
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— |
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— |
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Other comprehensive income |
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— |
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— |
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— |
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— |
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ATM proceeds, net of issuance costs |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Dividends and distributions to equity holders |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
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( |
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Stock-based compensation, net |
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( |
) |
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— |
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— |
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— |
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— |
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Balance at September 30, 2023 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
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$ |
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For the Nine Months Ended September 30, 2023
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Common Stock |
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Additional |
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Retained |
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Accumulated |
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Shares |
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Par |
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Paid-in |
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(Accumulated |
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Income |
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Noncontrolling |
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Total |
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Balance at December 31, 2022 |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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Net income |
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— |
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— |
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— |
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— |
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Other comprehensive income |
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— |
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— |
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— |
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— |
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ATM proceeds, net of issuance costs |
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— |
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— |
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— |
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— |
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Dividends and distributions to equity holders |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
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( |
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Stock-based compensation, net |
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— |
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— |
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— |
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— |
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Balance at September 30, 2023 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
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$ |
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The accompanying notes are an integral part of this financial statement.
5
FOUR CORNERS PROPERTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
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Nine Months Ended |
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|||||
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2024 |
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2023 |
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Cash flows - operating activities |
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Net income |
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$ |
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$ |
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Adjustments to reconcile net income to cash provided by operating activities: |
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Depreciation and amortization |
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Realized gain on sale, net |
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( |
) |
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Non-cash revenue adjustments |
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Amortization of financing costs |
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|
|
||
Stock-based compensation expense |
|
|
|
|
|
|
||
Deferred income taxes |
|
|
( |
) |
|
|
( |
) |
Changes in assets and liabilities: |
|
|
|
|
|
|
||
Derivative assets and liabilities |
|
|
( |
) |
|
|
|
|
Straight-line rent adjustment |
|
|
( |
) |
|
|
( |
) |
Rent received in advance |
|
|
( |
) |
|
|
|
|
Intangible assets (lease incentive payments) |
|
|
( |
) |
|
|
|
|
Other assets and liabilities |
|
|
( |
) |
|
|
|
|
Net cash provided by operating activities |
|
|
|
|
|
|
||
Cash flows - investing activities |
|
|
|
|
|
|
||
Purchases of real estate investments |
|
|
( |
) |
|
|
( |
) |
Proceeds from sale of real estate investments |
|
|
|
|
|
|
||
Change in advance deposits in acquisition of real estate investments |
|
|
( |
) |
|
|
( |
) |
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
Cash flows - financing activities |
|
|
|
|
|
|
||
Net proceeds from ATM equity issuance |
|
|
|
|
|
|
||
Proceeds from issuance of senior notes |
|
|
|
|
|
|
||
Repayment of senior notes |
|
|
( |
) |
|
|
|
|
Payment of deferred financing costs |
|
|
( |
) |
|
|
( |
) |
Proceeds from term loan borrowing |
|
|
|
|
|
|
||
Proceeds from revolving credit facility |
|
|
|
|
|
|
||
Repayment of revolving credit facility |
|
|
( |
) |
|
|
( |
) |
Payment of dividends to shareholders |
|
|
( |
) |
|
|
( |
) |
Distributions to non-controlling interests |
|
|
( |
) |
|
|
( |
) |
Employee shares withheld for taxes |
|
|
( |
) |
|
|
( |
) |
Net cash (used in) provided by financing activities |
|
|
|
|
|
|
||
Net decrease in cash and cash equivalents, including restricted cash |
|
|
|
|
|
( |
) |
|
Cash and cash equivalents, including restricted cash, at beginning of period |
|
|
|
|
|
|
||
Cash and cash equivalents, including restricted cash, at end of period |
|
$ |
|
|
$ |
|
||
Supplemental disclosures: |
|
|
|
|
|
|
||
Interest paid |
|
$ |
|
|
$ |
|
||
Income taxes paid |
|
$ |
|
|
$ |
|
||
Operating lease payments received (lessor) |
|
$ |
|
|
$ |
|
||
Operating lease payments remitted (lessee) |
|
$ |
|
|
$ |
|
||
Non-cash activities: |
|
|
|
|
|
|
||
Dividends declared but not paid |
|
$ |
|
|
$ |
|
||
Change in fair value of derivative instruments |
|
$ |
( |
) |
|
$ |
( |
) |
The accompanying notes are an integral part of this financial statement.
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – ORGANIZATION
Four Corners Property Trust, Inc. (together with its consolidated subsidiaries, “FCPT”) is an independent, publicly traded, self-administered company, primarily engaged in the ownership, acquisition and leasing of restaurant and retail properties. Substantially all of our business is conducted through Four Corners Operating Partnership, LP (“FCPT OP”), a Delaware limited partnership of which we are the initial and substantial limited partner. Our wholly owned subsidiary, Four Corners GP, LLC (“FCPT GP”), is its sole general partner.
Any references to “the Company,” “we,” “us,” or “our” refer to FCPT as an independent, publicly traded, self-administered company.
FCPT was incorporated as a Maryland corporation on July 2, 2015 as a wholly owned indirect subsidiary of Darden Restaurants, Inc., (together with its consolidated subsidiaries “Darden”), for the purpose of owning, acquiring and leasing properties on a triple-net basis, for use in the restaurant and other retail industries. On November 9, 2015, Darden completed a spin-off of FCPT whereby Darden contributed to us
We believe that we have been organized and have operated in conformity with the requirements for qualification and taxation as a real estate investment trust (a “REIT”) for federal income tax purposes commencing with our taxable year ended December 31, 2016, and we intend to continue to operate in a manner that will enable us to maintain our qualification as a REIT. To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute at least 90% of our REIT taxable income to our shareholders, subject to certain adjustments and excluding any net capital gain. As a REIT, we will not be subject to federal corporate income tax on that portion of net income that is distributed to our shareholders. However, FCPT’s taxable REIT subsidiaries (“TRS”) will generally be subject to federal, state, and local income taxes. We made our REIT election upon the filing of our 2016 tax return.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Basis of Presentation
The accompanying consolidated financial statements (the “Consolidated Financial Statements”) include the accounts of Four Corners Property Trust, Inc. and its consolidated subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
The Consolidated Financial Statements reflect all adjustments which are, in the opinion of management, necessary to a fair presentation of the results for the interim periods presented. These adjustments are considered to be of a normal, recurring nature.
Use of Estimates
The preparation of these Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. The estimates and assumptions used in the accompanying Consolidated Financial Statements are based on management’s evaluation of the relevant facts and circumstances. Actual results may differ from the estimates and assumptions used in preparing the accompanying Consolidated Financial Statements, and such differences could be material.
Real Estate Investments, Net
Real estate investments, net are recorded at cost less accumulated depreciation. Building components are depreciated over estimated useful lives ranging from to
Our accounting policies regarding land, buildings, equipment, and improvements, include our judgments regarding the estimated useful lives of these assets, the residual values to which the assets are depreciated or amortized, the determination of what constitutes a reasonably assured lease term, and the determination as to what constitutes enhancing the value of or increasing the life of existing assets. These judgments and estimates may produce materially different amounts of reported depreciation and amortization expense if
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
different assumptions were used. As discussed further below, these judgments may also impact our need to recognize an impairment charge on the carrying amount of these assets as the cash flows associated with the assets are realized, or as our expectations of estimated future cash flows change.
Acquisition of Real Estate
The Company evaluates acquisitions to determine whether transactions should be accounted for as asset acquisitions or business combinations in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2017-01. The Company has determined the land, building, site improvements, and in-places leases (if any) of assets acquired were each single assets as the building and property improvements are attached to the land and cannot be physically removed and used separately from the land without incurring significant costs or reducing their fair value. Additionally, the Company has not acquired a substantive process used to generate outputs. As substantially all of the fair value of the gross assets acquired are concentrated in a single identifiable asset and there were no processes acquired, the acquisitions do not qualify as a business and are accounted for as asset acquisitions. Related transaction costs are generally capitalized and amortized over the useful life of the acquired assets.
The Company allocates the purchase price (including acquisition and closing costs) of real estate acquisitions to land, building, and improvements based on their relative fair values. The determination of the building fair value is on an ‘as-if-vacant’ basis. Value is allocated to acquired lease intangibles (if any) based on the costs avoided and revenue recognized by acquiring the property subject to lease and avoiding an otherwise ‘dark period’. In making estimates of fair values for this purpose, the Company uses a third-party specialist that obtains various information about each property, as well as the pre-acquisition due diligence of the Company and prior leasing activities at the site.
Lease Intangibles
Lease intangibles, if any, acquired in conjunction with the purchase of real estate represent the value of in-place leases and above- or below-market leases. For real estate acquired subject to existing lease agreements, acquired lease intangibles are valued based on the Company’s estimates of costs related to tenant acquisition and the asset carrying costs, including lost revenue, that would be incurred during the time it would take to locate a tenant if the property were vacant, considering current market conditions and costs to execute similar leases at the time of the acquisition. Above-market and below-market lease intangibles are recorded based on the present value of the difference between the contractual amounts to be paid pursuant to the leases at the time of acquisition of the real estate and the Company’s estimate of current market lease rates for the property, measured over a period equal to the remaining initial term of the lease.
In-place lease intangibles are amortized on a straight-line basis over the remaining initial term of the related lease and included in depreciation and amortization expense. Above-market lease intangibles are amortized over the remaining initial terms of the respective leases as a decrease in rental revenue. Below-market lease intangibles are generally amortized as an increase to rental revenue over the remaining initial term of the respective leases, but may be amortized over the renewal periods if the Company believes it is likely the tenant will exercise the renewal option. Should a lease terminate early, the unamortized portion of any related lease intangible is immediately recognized as an impairment loss included in depreciation and amortization expense. To date, the Company has not had significant early terminations.
Finance ground lease assets are also included in lease intangible assets, net on the Consolidated Balance Sheets. See Leases below for additional information.
Impairment of Long-Lived Assets
Land, buildings and equipment and certain other assets, including definite-lived intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Such events and changes may include macroeconomic conditions, including those caused by global pandemics, which may result in property operational disruption and indicate that the carrying amount may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to the future undiscounted net cash flows expected to be generated by the assets. Identifiable cash flows are measured at the lowest level for which they are largely independent of the cash flows of other groups of assets and liabilities, generally at the restaurant and retail level. If these assets are determined to be impaired, the amount of impairment recognized is measured by the amount by which the carrying amount of the assets exceeds their fair value. Fair value is generally determined by appraisals or sales prices of comparable assets.
The judgments we make related to the expected useful lives of long-lived assets and our ability to realize undiscounted cash flows in excess of the carrying amounts of these assets are affected by factors such as the ongoing maintenance and improvements of the assets, changes in economic conditions, changes in usage or operating performance, desirability of the restaurant and retail sites and other factors, such as our ability to sell our assets held for sale. As we assess the ongoing expected cash flows and carrying amounts of our long-lived assets, significant adverse changes in these factors could cause us to realize a material impairment loss.
Exit or disposal activities include the cost of disposing of the assets and are generally expensed as incurred. Upon disposal of the assets, any gain or loss is recorded in the same caption within our Income Statements as the original impairment. Provisions for
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
impairment are included in depreciation and amortization expense in the accompanying Income Statements. We did
Real Estate Held for Sale
Real estate is classified as held for sale when the sale is probable, will be completed within one year, purchase agreements are executed, the buyer has a significant deposit at risk, and no financing contingencies exist which could prevent the transaction from being completed in a timely manner. Restaurant and retail sites and certain other assets to be disposed of are included in assets held for sale when the likelihood of disposing of these assets within
Cash, Cash Equivalents, and Restricted Cash
We consider all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash and cash equivalents can consist of cash and money market accounts. Restricted cash consists of 1031 tax deferred real estate exchange proceeds and is included in Other assets in our Consolidated Balance Sheets.
The following table provides a reconciliation of cash, cash equivalents, and restricted cash in our Consolidated Balance Sheets to the total amount shown in our Consolidated Statements of Cash Flows:
(In thousands) |
|
September 30, |
|
|
December 31, |
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Restricted cash (included in Other assets) |
|
|
|
|
|
|
||
Total Cash, Cash Equivalents, and Restricted Cash |
|
$ |
|
|
$ |
|
||
Debt
The Company’s debt consists of non-amortizing term loans, a revolving credit facility and senior, unsecured, fixed rate notes (collectively referred to as “Debt”). Debt is carried at unpaid principal balance, net of deferred financing costs. All of our debt is currently unsecured and interest is paid monthly on our non-amortizing term loans and revolving credit facility and semi-annually on our senior fixed rate notes.
Deferred Financing Costs
Financing costs related to debt are deferred and amortized over the remaining life of the debt using the effective interest method. These costs are presented as a direct deduction from their related liabilities in the Consolidated Balance Sheets.
See Note 6 - Debt, Net of Deferred Financing Costs for additional information.
Derivative Instruments and Hedging Activities
We enter into derivative instruments for risk management purposes only, including derivatives designated as hedging instruments as required by FASB ASC Topic 815, Derivatives and Hedging, and those utilized as economic hedges. Our use of derivative instruments is currently limited to interest rate hedges. These instruments are generally structured as hedges of the variability of cash flows related to forecasted transactions (cash flow hedges). We do not enter into derivative instruments for trading or speculative purposes, where changes in the cash flows of the derivative are not expected to offset changes in cash flows of the hedged item. All derivatives are recognized on the balance sheet at fair value. For those derivative instruments for which we intend to elect hedge accounting, at the time the derivative contract is entered into, we document all relationships between hedging instruments and hedged items, as well as our risk-management objective and strategy for undertaking the various hedge transactions. This process includes linking all derivatives designated as cash flow hedges to specific assets and liabilities on the consolidated balance sheet or to specific forecasted transactions. We also formally assess, both at the hedge’s inception and on an ongoing basis, whether the derivatives used in hedging transactions are highly effective in offsetting changes in cash flows of hedged items.
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
To the extent our derivatives are effective in offsetting the variability of the hedged cash flows, and otherwise meet the cash flow hedge accounting criteria in accordance with United States generally accepted accounting principles (“U.S. GAAP”), changes in the derivatives’ fair value are not included in current earnings but are included in accumulated other comprehensive income, net of tax. These changes in fair value will be reclassified into earnings at the time of the forecasted transaction. Ineffectiveness measured in the hedging relationship is recorded in earnings in the period in which it occurs.
See Note 7 - Derivative Financial Instruments for additional information.
Other Assets and Liabilities
Other assets primarily consist of right of use operating lease assets, pre-acquisition costs, restricted cash, prepaid assets, food and beverage inventories for use by our Kerrow operating subsidiary, escrow deposits, and accounts receivable. Other liabilities primarily consist of accrued compensation, accrued interest expense, accrued operating expenses, intangible lease liabilities, and operating lease liabilities.
See Note 8 - Supplemental Detail for Certain Components of Consolidated Balance Sheets for additional information.
Leases
Effective January 1, 2019, the Company adopted FASB Accounting Standards Codification 842, Leases, including effective amendments (“ASC 842”). All significant lease arrangements are generally recognized at lease commencement. For leases where the Company is the lessee upon adoption of ASC 842, operating or finance lease right-of-use (“ROU”) assets and lease liabilities are recognized at commencement based on the present value of lease payments over the lease term. ROU assets represent our right to use an underlying asset during the reasonably certain lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense is recognized on a straight-line basis over the lease term.
As part of certain real estate investment transactions, the Company may enter into long-term ground leases as a lessee. The Company recognizes a ground lease (or right-of-use) asset and related lease liability for each of these ground leases. Ground lease assets and lease liabilities are recognized based on the present value of the lease payments. The Company uses its estimated incremental borrowing rate, which is the estimated rate at which the Company could borrow on a collateralized basis with similar payments over a similar term, in determining the present value of the lease payments.
For leases where the Company is the lessor, we determine the classification upon commencement. At September 30, 2024, all such leases are classified as operating leases. These operating leases may contain both lease and non-lease components. The Company accounts for lease and non-lease components as a single component.
See Note 5 - Leases for additional information.
Revenue Recognition
Rental Revenue
For those net leases that provide for periodic and determinable increases in base rent, base rental revenue is recognized on a straight-line basis over the applicable lease term when collectability is probable. Recognizing rental revenue on a straight-line basis generally results in recognized revenues during the first half of a lease term exceeding the cash amounts contractually due from our tenants, creating a deferred rent receivable.
In certain circumstances, the Company may offer tenant allowance funds in exchange for increasing rent, extending the term, and including annual sales reporting among other items. These tenant allowance funds are classified as lease incentives upon payment and are amortized as a reduction to revenue over the lease term. Lease incentives are included in intangible lease assets, net, on our Consolidated Balance Sheets. During the three months ended September 30, 2024, the Company paid lease incentives to tenants of $
We assess the collectability of our lease receivables, including deferred rents receivable, on several factors, including payment history, the financial strength of the tenant and any guarantors, historical operations and operating trends of the property, and current economic conditions. If our evaluation of these factors indicates it is not probable that we will be able to recover substantially all of the receivable, we derecognize the deferred rent receivable asset and record that revenue as a reduction in rental revenue. If we determine the lease receivable will not be collected due to a credit concern, we reduce the recorded revenue for the period and related accounts receivable.
10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
For those leases that provide for periodic increases in base rent only if certain revenue parameters or other substantive contingencies are met, the increased rental revenue is recognized as the related parameters or contingencies are met, rather than on a straight-line basis over the applicable lease term. Costs paid by the lessor and reimbursed by the lessees are included in variable lease payments and presented on a gross basis within rental revenue. Sales taxes collected from lessees and remitted to governmental authorities are presented on a net basis within rental revenue.
Restaurant Revenue
Restaurant revenue represents food, beverage, and other products sold and is presented net of the following discounts: coupons, employee meals, complimentary meals and gift cards. Revenue from restaurant sales, whether received in cash or by credit card, is recognized when food and beverage products are sold. At September 30, 2024 and December 31, 2023, credit card receivables, included in other assets, totaled $
Restaurant Expenses
Restaurant expenses include restaurant labor, general and administrative expenses, rent expense, and food and beverage costs. Food and beverage costs include inventory, warehousing, related purchasing and distribution costs. Vendor allowances received in connection with the purchase of a vendor’s products are recognized as a reduction of the related food and beverage costs as earned.
Realized Gain on Sale, Net
The Company recognizes gain on sale of real estate in accordance with FASB ASU No. 2017-05, “Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets.” The Company evaluates each transaction to determine if control of the asset, as well as other specified criteria, has been transferred to the buyer to determine proper timing of revenue recognition, as well as transaction price allocation. During the nine months ended September 30, 2024, the Company did
Income Taxes
We believe that we have been organized and have operated in conformity with the requirements for qualification and taxation as a REIT commencing with our taxable year ended December 31, 2016, and we intend to continue to operate in a manner that will enable us to maintain our qualification as a REIT. So long as we qualify as a REIT, we generally will not be subject to federal income tax on our net income that we distribute currently to our shareholders. To maintain our qualification as a REIT, we are required under the Code to distribute at least 90% of our REIT taxable income (without regard to the deduction for dividends paid and excluding net capital gains) to our shareholders and meet certain other requirements. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate rates. Even if we qualify as a REIT, we may also be subject to certain state, local and franchise taxes. Under certain circumstances, federal income and excise taxes may be due on our undistributed taxable income.
The Kerrow Restaurant Operating Business is a TRS and is taxed as a C corporation.
See Note 9 - Income Taxes for additional information.
Earnings Per Share
Basic earnings per share (“EPS”) are computed by dividing net income allocated to common shareholders by the weighted-average number of common shares outstanding for the reporting period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. No effect is shown for any securities that are anti-dilutive. Net income allocated to common shareholders represents net income less income allocated to participating securities and non-controlling interests. None of the Company’s equity awards are participating securities.
See Note 10 - Equity for additional information.
Noncontrolling Interest
Noncontrolling interest represents the aggregate limited partnership interests in FCPT OP held by third parties. In accordance with GAAP, the noncontrolling interest of FCPT OP is shown as a component of equity on our Consolidated Balance Sheets, and the portion of income allocable to third parties is shown as net income attributable to noncontrolling interests in our Income Statements and Consolidated Statements of Comprehensive Income (Loss) (“Comprehensive Income Statement”). The Company follows the guidance issued by the FASB regarding the classification and measurement of redeemable securities. At FCPT OP’s option, it may satisfy this redemption with cash or by exchanging non-registered shares of FCPT common stock on a
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
has determined that the common OP units meet the requirements to be classified as permanent equity. A reconciliation of equity attributable to noncontrolling interest is disclosed in our Consolidated Statements of Changes in Equity.
See Note 10 - Equity for additional information.
Stock-Based Compensation
The Company’s stock-based compensation plan provides for the grant of restricted stock awards (“RSAs”), deferred stock units (“DSUs”), performance-based awards, including performance stock units (“PSUs”), dividend equivalents (“DEUs”), restricted stock units (“RSUs”), and other types of awards to eligible participants. DEUs are earned during the vesting period and received upon vesting of award. Upon forfeiture of an award, DEUs earned during the vesting period are also forfeited. We classify stock-based payment awards either as equity awards or liability awards based upon cash settlement options. Equity classified awards are measured based on the fair value on the date of grant. Liability classified awards are remeasured to fair value each reporting period. We recognize costs resulting from the Company’s stock-based compensation awards on a straight-line basis over their vesting periods, which range between and
See Note 11 - Stock-Based Compensation for additional information.
Fair Value of Financial Instruments
We use a fair value approach to value certain assets and liabilities. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. We use a fair value hierarchy, which distinguishes between assumptions based on market data (observable inputs) and an entity's own assumptions (unobservable inputs). The hierarchy consists of three levels:
Application of New Accounting Standards
We consider the applicability and impact of all ASUs issued by the FASB. ASUs not yet adopted were assessed and determined to be either not applicable or are expected to have minimal impact to our consolidated result of operations, financial position and cash flows.
In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures”, which expands reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendments in the ASU require, among other things, disclosure of significant segment expenses that are regularly provided to an entity's chief operating decision maker (“CODM”) and a description of other segment items (the difference between segment revenue less the segment expenses disclosed under the significant expense principle and each reported measure of segment profit or loss) by reportable segment, as well as disclosure of the title and position of the CODM, and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. Annual disclosures are required for fiscal years beginning after December 15, 2023 and interim disclosures are required for periods within fiscal years beginning after December 15, 2024. Retrospective application is required, and early adoption is permitted. We are currently evaluating the potential impact of adopting this new guidance on our consolidated financial statements and related disclosures.
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”, which modifies the rules on income tax disclosures to require entities to disclose (1) specific categories in the rate reconciliation, (2) the income or loss from continuing operations before income tax expense or benefit (separated between domestic and foreign) and (3) income tax expense or benefit from continuing operations (separated by federal, state and foreign) among other changes. The guidance is effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. ASU 2023-09 should be applied on a prospective basis, but retrospective application is permitted. We are currently evaluating the potential impact of adopting this new guidance on our consolidated financial statements and related disclosures.
NOTE 3 – CONCENTRATION OF CREDIT RISK
Our tenant base and the restaurant and retail brands operating our properties are highly concentrated. With respect to our tenant base, Darden leases represent approximately
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
be an active link or to otherwise incorporate the information contained on such website (including Darden’s filings with the SEC) into this report or our other filings with the SEC.
We also are subject to concentration risk in terms of the restaurant and retail brands that operate our properties. As of September 30, 2024, we had
We are exposed to credit risk with respect to cash held at various financial institutions, access to our credit facility, and amounts due or payable under our derivative contracts. At September 30, 2024, our exposure to risk related to amounts due to us on our derivative instruments totaled $
NOTE 4 – REAL ESTATE INVESTMENTS, NET AND INTANGIBLE ASSETS AND LIABILITIES, NET
Real Estate Investments, Net
Real estate investments, net, which consist of land, buildings and improvements leased to others subject to net operating leases and those utilized in the operations of Kerrow Restaurant Operating Business are summarized as follows:
(In thousands) |
|
September 30, |
|
|
December 31, |
|
||
Land |
|
$ |
|
|
$ |
|
||
Buildings and improvements |
|
|
|
|
|
|
||
Equipment |
|
|
|
|
|
|
||
Total gross real estate investments |
|
|
|
|
|
|
||
Less: Accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
Total real estate investments, net |
|
|
|
|
|
|
||
Intangible lease assets, net |
|
|
|
|
|
|
||
Total Real Estate Investments and Intangible Lease Assets, Net |
|
$ |
|
|
$ |
|
||
During the nine months ended September 30, 2024, the Company invested $
During the nine months ended September 30, 2023, the Company invested $
During the nine months ended September 30, 2023, the Company exercised its option to purchase
Intangible Lease Assets and Liabilities, Net
Acquired in-place lease intangibles are amortized over the remaining lease term as depreciation and amortization expense. Above-market and below-market leases are amortized over the initial term of the respective leases as an adjustment to rental revenue. Lease incentives are amortized over the initial term of the respective leases as an adjustment to rental revenue. Intangible lease liabilities are included in Other liabilities in our Consolidated Balance Sheets.
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
The following tables detail intangible lease assets and liabilities.
(In thousands) |
|
September 30, |
|
|
December 31, |
|
||
Acquired in-place lease intangibles |
|
$ |
|
|
$ |
|
||
Above-market leases |
|
|
|
|
|
|
||
(1) |
|
|
|
|
|
|
||
Lease incentives |
|
|
|
|
|
|
||
Tenant improvements intangibles |
|
|
|
|
|
|
||
Direct lease costs |
|
|
|
|
|
|
||
Total |
|
|
|
|
|
|
||
Less: Accumulated amortization |
|
|
( |
) |
|
|
( |
) |
Intangible Lease Assets, Net |
|
$ |
|
|
$ |
|
||
(In thousands) |
|
September 30, |
|
|
December 31, |
|
||
Below-market leases |
|
$ |
|
|
$ |
|
||
Less: Accumulated amortization |
|
|
( |
) |
|
|
( |
) |
Intangible Lease Liabilities, Net |
|
$ |
|
|
$ |
|
||
The value of acquired in-place leases amortized and included in depreciation and amortization expense was $
At September 30, 2024, the total weighted average amortization period remaining for our intangible lease assets and liabilities was
Amortization of Lease Intangibles
The following table presents the estimated impact during the next five years and thereafter related to the amortization of in-place lease intangibles, and above-market and below-market lease intangibles for properties held for investment.
(In thousands) |
|
September 30, |
|
|
2024 (Three Months) |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
Thereafter |
|
|
|
|
Total Future Amortization |
|
$ |
|
|
NOTE 5 – LEASES
Operating Leases as Lessee
As a lessee we record ROU assets and lease liabilities for the
14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Operating Lease Liability
Maturities of operating lease liabilities were as follows:
(In thousands) |
|
September 30, |
|
|
2024 (Three Months) |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
Thereafter |
|
|
|
|
Total Payments |
|
|
|
|
Less: Interest |
|
|
( |
) |
Operating Lease Liability |
|
$ |
|
|
The weighted-average discount rate for operating leases at September 30, 2024 was
Rental expense was $
Operating Leases as Lessor
Our leases consist primarily of single-tenant, net leases, in which the tenants are responsible for making payments to third parties for operating expenses such as property taxes, insurance, and other costs associated with the properties leased to them. In leases where costs are paid by the Company and reimbursed by lessees, such payments are considered variable lease payments and recognized in rental revenue.
The following table shows the components of rental revenue.
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
(In thousands) |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Lease revenue - operating leases |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Variable lease revenue (tenant reimbursements) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total Rental Revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Future Minimum Lease Payments to be Received
The following table presents the scheduled minimum future contractual rent to be received under the remaining non-cancelable term of the operating leases. The table presents future minimum lease payments due during the initial lease term only as lease renewal periods are exercisable at the option of the lessee.
(In thousands) |
|
September 30, |
|
|
2024 (Three Months) |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
Thereafter |
|
|
|
|
Total Future Minimum Lease Payments |
|
$ |
|
|
Ground Leases as Lessee
As of September 30, 2024 and December 31, 2023, the Company had finance ground lease assets aggregating $
NOTE 6 – DEBT, NET OF DEFERRED FINANCING COSTS
At September 30, 2024, our debt consisted of (1) $
15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
million of senior, unsecured, fixed rate notes. At September 30, 2024 and December 31, 2023, we had
Revolving Credit and Term Loan Agreement
On March 14, 2024, FCPT entered into an Incremental Amendment to the Third Amended and Restated Revolving Credit and Term Loan Agreement with a group of existing lenders (the “Credit Agreement”). The Company utilized the accordion feature of the Third Amended and Restated Revolving Credit and Term Loan Agreement to enter into a new $
The following table presents the Term Loan balances.
|
|
|
|
|
|
|
Outstanding Balance |
|
||||||
(Dollars in thousands) |
|
Maturity |
|
Interest |
|
|
September 30, |
|
|
December 31, |
|
|||
Term Loans: |
|
|
|
|
|
|
|
|
|
|
|
|||
Term loan due 2025 |
|
|
|
% |
(a) |
$ |
|
|
$ |
|
||||
Term loan due 2026 |
|
|
|
% |
(a) |
|
|
|
|
|
||||
Term loan due 2027 |
|
|
|
% |
(a) |
|
|
|
|
|
||||
Term loan due 2027 |
|
|
|
% |
(a)(b) |
|
|
|
|
|
||||
Term loan due 2028 |
|
|
|
% |
(a) |
|
|
|
|
|
||||
Total Term Loans |
|
|
|
|
|
|
$ |
|
|
$ |
|
|||
Note Purchase Agreement
The following table presents the senior unsecured fixed rate notes balance.
|
|
|
|
|
|
|
Outstanding Balance |
|
||||||
(Dollars in thousands) |
|
Maturity |
|
Interest |
|
|
September 30, |
|
|
December 31, |
|
|||
Notes Payable: |
|
|
|
|
|
|
|
|
|
|
|
|||
Senior unsecured fixed rate note, issued June 2017 |
|
|
|
% |
|
$ |
|
|
$ |
|
||||
Senior unsecured fixed rate note, issued December 2018 |
|
|
|
% |
|
|
|
|
|
|
||||
Senior unsecured fixed rate note, issued June 2017 |
|
|
|
% |
|
|
|
|
|
|
||||
Senior unsecured fixed rate note, issued December 2018 |
|
|
|
% |
|
|
|
|
|
|
||||
Senior unsecured fixed rate note, issued April 2021 |
|
|
|
% |
|
|
|
|
|
|
||||
Senior unsecured fixed rate note, issued March 2020 |
|
|
|
% |
|
|
|
|
|
|
||||
Senior unsecured fixed rate note, issued March 2020 |
|
|
|
% |
|
|
|
|
|
|
||||
Senior unsecured fixed rate note, issued March 2022 |
|
|
|
% |
|
|
|
|
|
|
||||
Senior unsecured fixed rate note, issued April 2021 |
|
|
|
% |
|
|
|
|
|
|
||||
Senior unsecured fixed rate note, issued March 2022 |
|
|
|
% |
|
|
|
|
|
|
||||
Senior unsecured fixed rate note, issued July 2023 |
|
|
|
% |
|
|
|
|
|
|
||||
Total Notes |
|
|
|
|
|
|
$ |
|
|
$ |
|
|||
Debt Maturities
The following presents scheduled principal payments related to the Company’s debt.
(In thousands) |
|
September 30, |
|
|
Remainder of 2024 |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
Thereafter |
|
|
|
|
Total Scheduled Principal Payments |
|
$ |
|
|
16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Deferred Financing Costs
At September 30, 2024 and December 31, 2023, term loan and revolving credit facility net unamortized deferred financing costs were approximately $
At September 30, 2024 and December 31, 2023, senior unsecured notes net unamortized deferred financing costs were approximately $
The Company was in compliance with all debt covenants at September 30, 2024 and December 31, 2023.
NOTE 7 – DERIVATIVE FINANCIAL INSTRUMENTS
Risk Management Objective of Using Derivatives
We are exposed to certain risks arising from both our business operations and economic conditions. We principally manage our exposures to a wide variety of business and operational risks through management of our core business activities. We manage economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of our debt funding and the use of derivative financial instruments. Specifically, we enter into derivative financial instruments to manage exposures that arise from business activities that result in our receipt or payment of future cash amounts, the value of which are determined by interest rates. Our derivative financial instruments are used to manage differences in the amount, timing, and duration of our known or expected cash payments principally related to our borrowings.
Cash Flow Hedges of Interest Rate Risk
Our objectives in using interest rate derivatives are to add stability to interest expense and to manage our exposure to interest rate movements. To accomplish these objectives, we primarily use interest rate swaps as part of our interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for us making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. The change in the fair value of derivatives designated and that qualify as cash flow hedges is recorded on our consolidated balance sheet in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the nine months ended September 30, 2024 and 2023, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt.
As of September 30, 2024, $
During the nine months ended September 30, 2024, we entered into
Product |
|
Fixed Rate |
|
|
Notional Amount |
|
|
Index |
|
Effective Date |
|
Maturity Date |
||
Swap |
|
|
% |
|
$ |
|
|
Daily Simple + |
|
|
||||
Swap |
|
|
% |
|
|
|
|
Daily Simple + |
|
|
||||
Swap |
|
|
% |
|
|
|
|
Daily Simple + |
|
|
||||
Swap |
|
|
% |
|
|
|
|
Daily Simple + |
|
|
||||
Swap (1) |
|
|
% |
|
|
|
|
Daily Simple + |
|
|
||||
Swap |
|
|
% |
|
|
|
|
Daily Simple + |
|
|
||||
Swap |
|
|
% |
|
|
|
|
Daily Simple + |
|
|
||||
Swap |
|
|
% |
|
|
|
|
Daily Simple + |
|
|
||||
Swap |
|
|
% |
|
|
|
|
Daily Simple + |
|
|
||||
Swap |
|
|
% |
|
|
|
|
Daily Simple + |
|
|
||||
Swap |
|
|
% |
|
|
|
|
Daily Simple + |
|
|
||||
Swap |
|
|
% |
|
|
|
|
Daily Simple + |
|
|
||||
Swap |
|
|
% |
|
|
|
|
Daily Simple + |
|
|
||||
Swap |
|
|
% |
|
|
|
|
Daily Simple + |
|
|
||||
Swap |
|
|
% |
|
|
|
|
1 month SOFR |
|
|
||||
Swap |
|
|
% |
|
|
|
|
Daily Simple + |
|
|
||||
Swap |
|
|
% |
|
|
|
|
Daily Simple + |
|
|
||||
The Company also enters into forward-starting interest rate swap agreements to hedge against changes in future cash flows resulting from changes in interest rates from the trade date through the forecasted issuance date of debt. During the nine months ended
17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
September 30, 2024, the Company terminated
Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on our variable-rate debt. We estimate that over the next twelve months an additional $
Non-designated Hedges
We do not use derivatives for trading or speculative purposes. During the nine months ended September 30, 2024 and 2023, we did not have any derivatives that were not designated as cash flow hedges for accounting purposes.
Tabular Disclosure of Fair Values of Derivative Instruments on the Consolidated Balance Sheets
The table below presents the fair value of our derivative financial instruments as well as their classification on the consolidated balance sheet.
|
|
Derivative Assets |
|
|
Derivative Liabilities |
|
||||||||||||||
|
|
Balance |
|
Fair Value at |
|
|
Balance |
|
Fair Value at |
|
||||||||||
(Dollars in thousands) |
|
Sheet |
|
September 30, 2024 |
|
|
December 31, 2023 |
|
|
Sheet |
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Interest rate swaps |
|
Derivative assets |
|
$ |
|
|
$ |
|
|
Derivative liabilities |
|
$ |
|
|
$ |
|
||||
Total |
|
|
|
$ |
|
|
$ |
|
|
|
|
$ |
|
|
$ |
|
||||
Tabular Disclosure of the Effect of Derivative Instruments on the Consolidated Statements of Comprehensive Income (Loss)
The table below presents the effect of our interest rate swaps on comprehensive income.
(Dollars in thousands) |
|
Amount of |
|
|
Location of |
|
Amount |
|
|
Total |
|
|||
Three Months Ended |
|
$ |
( |
) |
|
Interest expense |
|
$ |
( |
) |
|
$ |
( |
) |
Three Months Ended |
|
|
|
|
Interest expense |
|
|
( |
) |
|
|
( |
) |
|
Nine Months Ended |
|
|
( |
) |
|
Interest expense |
|
|
( |
) |
|
|
( |
) |
Nine Months Ended |
|
|
|
|
Interest expense |
|
|
( |
) |
|
|
( |
) |
|
Tabular Disclosure Offsetting Derivatives
The table below presents a gross presentation, the effects of offsetting, and a net presentation of our derivatives at September 30, 2024 and December 31, 2023. The net amounts of derivative assets or liabilities can be reconciled to the tabular disclosure of fair value.
18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
The tabular disclosure of fair value provides the location that derivative assets and liabilities are presented on the consolidated balance sheets.
Offsetting of Derivative Assets
|
|
Gross |
|
|
Gross |
|
|
Net Amounts |
|
|
Gross Amounts Not Offset in |
|
|
|
|
|||||||||
(In thousands) |
|
Recognized |
|
|
Balance |
|
|
Balance |
|
|
Financial |
|
|
Cash Collateral |
|
|
Net Amount |
|
||||||
September 30, 2024 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||
December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||||
Offsetting of Derivative Liabilities
|
|
Gross |
|
|
Gross |
|
|
Net Amounts |
|
|
Gross Amounts Not Offset in |
|
|
|
|
|||||||||
(In thousands) |
|
Recognized |
|
|
Balance |
|
|
Balance |
|
|
Financial |
|
|
Cash Collateral |
|
|
Net Amount |
|
||||||
September 30, 2024 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||
December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||||
Credit-risk-related Contingent Features
The agreement with our derivative counterparty provides that if we default on any of our indebtedness, including default for which repayment of the indebtedness has not been accelerated by the lender, then we could also be declared in default on our derivative obligations.
At September 30, 2024 and December 31, 2023, the fair value of derivatives in a net asset position related to these agreements was $
NOTE 8 – SUPPLEMENTAL DETAIL FOR CERTAIN COMPONENTS OF CONSOLIDATED BALANCE SHEETS
Other Assets
The components of other assets were as follows:
(In thousands) |
|
September 30, |
|
|
December 31, |
|
||
|
$ |
|
|
$ |
|
|||
Accounts receivable, net |
|
|
|
|
|
|
||
Prepaid acquisition costs and deposits |
|
|
|
|
|
|
||
Prepaid assets |
|
|
|
|
|
|
||
Food and beverage inventories |
|
|
|
|
|
|
||
Restricted cash |
|
|
— |
|
|
|
|
|
Other |
|
|
|
|
|
|
||
Total Other Assets |
|
$ |
|
|
$ |
|
||
19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Other Liabilities
The components of other liabilities were as follows:
(In thousands) |
|
September 30, |
|
|
December 31, |
|
||
Accrued interest expense |
|
$ |
|
|
$ |
|
||
Tenant improvements payable and deposits |
|
|
|
|
|
|
||
|
|
|
|
|
|
|||
Accrued tenant property tax |
|
|
|
|
|
|
||
Intangible lease liabilities, net |
|
|
|
|
|
|
||
Accrued compensation |
|
|
|
|
|
|
||
Accrued operating expenses |
|
|
|
|
|
|
||
Accounts payable |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total Other Liabilities |
|
$ |
|
|
$ |
|
||
NOTE 9 – INCOME TAXES
We believe that we have been organized and have operated in conformity with the requirements for qualification and taxation as a REIT commencing with our taxable year ended December 31, 2016, and we intend to continue to operate in a manner that will enable us to maintain our qualification as a REIT. So long as we qualify as a REIT, we generally will not be subject to federal income tax on our net income that we distribute currently to our stockholders. Accordingly, no provision for federal income taxes has been included in the accompanying consolidated financial statements for the nine months ended September 30, 2024 related to the REIT.
Income tax expense consists of federal, state, and local income taxes incurred by FCPT’s TRS, and state and local income taxes incurred by FCPT on its lease portfolio. During the three months ended September 30, 2024, we recorded income tax expense of $
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts for income tax purposes, as well as operating loss and tax credit carryforwards. The Company evaluates the realizability of its deferred tax assets and recognizes a valuation allowance if, based on the available evidence, both positive and negative, it is more likely than not that some portion or all of its deferred tax assets will not be realized. When evaluating the realizability of its deferred tax assets, the Company considers, among other matters, estimates of expected future taxable income, nature of current and cumulative losses, existing and projected book/tax differences, tax planning strategies available, and the general and industry specific economic outlook. This realizability analysis is inherently subjective, as it requires the Company to forecast its business and general economic environment in future periods. During the three and nine months ended September 30, 2024, $
NOTE 10 – EQUITY
Preferred Stock
At September 30, 2024 and December 31, 2023, the Company was authorized to issue
Common Stock
At September 30, 2024 and December 31, 2023, the Company was authorized to issue
On
On
On
Common Stock Issuance Under the At-The-Market Program
On September 17, 2024, the Company entered into a new ATM program (the "ATM program"), pursuant to which shares of the Company’s common stock having an aggregate gross sales price of up to $
20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
forward purchasers contemplated thereunder, in each case by means of ordinary brokers’ transactions on the NYSE or otherwise at market prices prevailing at the time of sale, at prices related to prevailing market prices or at negotiated prices, by privately negotiated transactions (including block sales) or by any other methods permitted by applicable law. The ATM program replaces the Company's previous $
During the three months ended September 30, 2024, the Company executed forward sale agreements with financial institutions acting as forward purchasers under the ATM programs to sell
During the three months ended September 30, 2024, the Company issued
The Company did not execute or settle forward sale agreements during the three months ended September 30, 2023. During the nine months ended September 30, 2023, the Company executed forward sale agreements with financial institutions acting as forward purchasers under the prior ATM program to sell
During the three months ended September 30, 2023, the Company did not issue any shares under the prior ATM program. During the nine months ended September 30, 2023, the Company issued
At September 30, 2024, there was $
Noncontrolling Interest
At September 30, 2024, there were
At September 30, 2024, FCPT was the owner of approximately
Earnings Per Share
The following table presents the computation of basic and diluted net earnings per common share.
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
(In thousands except for shares and per share data) |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Average common shares outstanding – basic |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net effect of dilutive equity awards |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Average common shares outstanding – diluted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income available to common shareholders |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Basic net earnings per share |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Diluted net earnings per share |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
For the three months ended September 30, 2024 and 2023, the number of outstanding equity awards that were anti-dilutive totaled
Exchangeable OP units have been omitted from the denominator for the purpose of computing diluted earnings per share since FCPT OP, at its option, may satisfy a redemption with cash or by exchanging non-registered shares of FCPT common stock. The weighted average exchangeable OP units outstanding for the three and nine months ended September 30, 2024 and 2023 was
NOTE 11 – STOCK-BASED COMPENSATION
On June 10, 2022, the Board of Directors of FCPT adopted, and FCPT’s stockholders approved, the Amended and Restated Four Corners Property Trust, Inc. 2015 Omnibus Incentive Plan (the “Amended Plan”) to, among other things, increase the maximum number of shares of our common stock reserved for issuance under the 2015 Plan by
At September 30, 2024,
(In thousands) |
|
Restricted |
|
|
Restricted |
|
|
Performance |
|
|
Total |
|
||||
Unrecognized compensation cost at January 1, 2024 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Equity grants |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Equity grant forfeitures |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Equity compensation expense |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Unrecognized Compensation Cost at September 30, 2024 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
At September 30, 2024, the weighted average amortization period remaining for all of our equity awards was
Restricted Stock Units
RSUs have been granted at a value equal to the
At September 30, 2024 and December 31, 2023, there were
Restricted Stock Awards
RSAs have been granted at a value equal to the
At September 30, 2024 and December 31, 2023, there were
Performance-Based Restricted Stock Awards
At September 30, 2024 and December 31, 2023, the target number of PSUs that were unvested was
The performance period of the unvested grants run from January 1, 2024 through December 31, 2026, from January 1, 2023 through December 31, 2025, and from January 1, 2022 through December 31, 2024. Pursuant to the PSU award agreement, each participant is eligible to vest in and receive shares of the Company's common stock based on the initial target number of shares granted multiplied by a percentage range between
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
For the 2024 PSU grant, the Company used an implied volatility assumption of
Based on the grant date fair value, the Company expects to recognize $
NOTE 12 – FAIR VALUE MEASUREMENTS
The carrying amounts of certain of the Company’s financial instruments including cash equivalents, accounts receivable, accounts payable, and accrued liabilities approximate fair value due either to length of maturity or interest rates that approximate prevailing market rates. The carrying value of derivative financial instruments equal fair value in accordance with U.S. GAAP. Determining which category an asset or liability falls within the hierarchy requires significant judgment. We evaluate hierarchy disclosures each reporting period.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table presents the assets and liabilities recorded that are reported at fair value on our Consolidated Balance Sheets on a recurring basis.
September 30, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
(In thousands) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Derivative assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Derivative liabilities |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
(In thousands) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Derivative assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Derivative liabilities |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Derivative Financial Instruments
Currently, we use interest rate swaps to manage our interest rate risk associated with our notes payable. The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves.
The fair values of interest rate options are determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rise above the strike rate of the caps. The variable interest rates used in the calculation of projected receipts on the cap are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities.
To comply with the provisions of ASC 820, we incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees.
Although we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by ourselves and our counterparties. We have determined that the significance of the impact of the credit valuation adjustments made to our derivative contracts, which determination was based on the fair value of each individual contract, was not significant to the overall valuation. As a result, all of our derivatives held at September 30, 2024, and December 31, 2023 were classified as Level 2 of the fair value hierarchy.
23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Fair Value of Certain Financial Liabilities
The following table presents the carrying value and fair value of certain financial liabilities that are recorded on our Consolidated Balance Sheets. The fair value of the debt (Level 2) is determined using the present value of the contractual cash flows, discounted at the current market cost of debt.
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||||||||||
(In thousands) |
|
Carrying Value(1) |
|
|
Fair Value |
|
|
Carrying Value(1) |
|
|
Fair Value |
|
||||
Term loan due November 2025 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Term loan due November 2026 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Term loan due January 2027 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Term loan due March 2027 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Term loan due January 2028 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Senior fixed note due June 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Senior fixed note due December 2026 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Senior fixed note due June 2027 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Senior fixed note due December 2028 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Senior fixed note due April 2029 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Senior fixed note due June 2029 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Senior fixed note due April 2030 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Senior fixed note due March 2031 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Senior fixed note due April 2031 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Senior fixed note due March 2032 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Senior fixed note due July 2033 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revolving credit facility due November 2025 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
NOTE 13 – COMMITMENTS AND CONTINGENCIES
Litigation
We are subject to private lawsuits, administrative proceedings and claims that arise in the ordinary course of our business from time to time. A number of these lawsuits, proceedings and claims may exist at any given time. These matters typically involve claims from guests, employee wage and hour claims and others related to operational issues common to the restaurant industry. We record our best estimate of a loss when the loss is considered probable. When a liability is probable and there is a range of estimated loss with no best estimate in the range, we record the minimum estimated liability related to the lawsuits, proceedings or claims. While the resolution of a lawsuit, proceeding or claim may have an impact on our financial results for the period in which it is resolved, we believe that the maximum liability related to probable lawsuits, proceedings and claims in which we are currently involved, individually and in the aggregate, will not have a material adverse effect on our financial position, results of operations or liquidity.
NOTE 14 – SEGMENTS
During the three and nine months ended September 30, 2024 and 2023, we operated in
24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
The following tables present financial information by segment.
Three Months Ended September 30, 2024
(In thousands) |
|
Real Estate |
|
|
Restaurant |
|
|
Intercompany |
|
|
Total |
|
||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Rental revenue |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
Intercompany rental revenue |
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
||
Restaurant revenue |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Total revenues |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Property expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Restaurant expenses |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Total operating expenses |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Interest expense |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
||
Other income |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Realized gain on sale, net |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income tax expense |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Net Income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Three Months Ended September 30, 2023
(In thousands) |
|
Real Estate |
|
|
Restaurant |
|
|
Intercompany |
|
|
Total |
|
||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Rental revenue |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
Intercompany rental revenue |
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
||
Restaurant revenue |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Total revenues |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Property expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Restaurant expenses |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Total operating expenses |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Interest expense |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
||
Other income |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Realized gain on sale, net |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income tax (expense) benefit |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Net Income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Nine Months Ended September 30, 2024
(In thousands) |
|
Real Estate |
|
|
Restaurant |
|
|
Intercompany |
|
|
Total |
|
||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Rental revenue |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
Intercompany rental revenue |
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
||
Restaurant revenue |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Total revenues |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Property expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Restaurant expenses |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Total operating expenses |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Interest expense |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
||
Other income |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Realized gain on sale, net |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income tax (expense) benefit |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
||
Net Income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Nine Months Ended September 30, 2023
(In thousands) |
|
Real Estate |
|
|
Restaurant |
|
|
Intercompany |
|
|
Total |
|
||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Rental revenue |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
Intercompany rental revenue |
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
||
Restaurant revenue |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Total revenues |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Property expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Restaurant expenses |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Total operating expenses |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Interest expense |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
||
Other income |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Realized gain on sale, net |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income tax (expense) benefit |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
||
Net Income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The following tables present supplemental information by segment.
Supplemental Segment Information at September 30, 2024
(In thousands) |
|
Real Estate |
|
|
Restaurant |
|
|
Total |
|
|||
Total real estate investments |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Total real estate investments, net |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Total assets |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Total debt, net of deferred financing costs |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Supplemental Segment Information at December 31, 2023
(In thousands) |
|
Real Estate |
|
|
Restaurant |
|
|
Total |
|
|||
Total real estate investments |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Total real estate investments, net |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Total assets |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Total debt, net of deferred financing costs |
|
$ |
|
|
$ |
|
|
$ |
|
|||
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
NOTE 15 – SUBSEQUENT EVENTS
The Company reviewed its subsequent events and transactions that have occurred after September 30, 2024, the date of the Consolidated Balance Sheet, through October 31, 2024, and noted the following:
Acquisitions & Disposals
The Company invested $
27
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
Statements contained in this Quarterly Report on Form 10-Q, including the documents that are incorporated by reference, that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). Also, when Four Corners Property Trust, Inc. (the “Company”) uses any of the words “anticipate,” “assume,” “believe,” “estimate,” “expect,” “intend,” or similar expressions, Four Corners Property Trust, Inc. is making forward-looking statements. Although management believes that the expectations reflected in such forward-looking statements are based upon present expectations and reasonable assumptions, actual results could differ materially from those set forth in the forward-looking statements. Certain factors that could cause actual results or events to differ materially from those anticipated or projected are described in the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023, as such factors may be updated from time to time in our periodic filings with the Securities and Exchange Commission.
Given these uncertainties, readers are cautioned not to place undue reliance on such statements, which speak only as of the date of this Quarterly Report on Form 10-Q or any document incorporated herein by reference. Four Corners Property Trust, Inc. undertakes no obligation to publicly release any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q.
The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes included in the Annual Report on Form 10-K of Four Corners Property Trust, Inc. for the year ended December 31, 2023 and in the Quarterly Report on Form 10-Q of Four Corners Property Trust, Inc. for the quarters ended March 31, 2024 and June 30, 2024. Any references to “FCPT,” “the Company,” “we,” “us,” or “our” refer to Four Corners Property Trust, Inc. as an independent, publicly traded, self-administered company.
All filings we make with the Securities and Exchange Commission (the “SEC”), including our Annual Report on Form 10-K, this and other quarterly reports on Form 10-Q, and our current reports on Form 8-K, and any amendments to those reports are available for free on our website, www.fcpt.com, as soon as reasonably practicable after they are filed with, or furnished to, the SEC. We do not intend our website to be an active link or to otherwise incorporate the information contained on our website into this report or other filings with the SEC. However, we use our website as a routine channel of distribution of company information, including press releases, presentations and supplemental information, as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. Accordingly, investors should monitor our website in addition to following press releases, SEC filings and public conference calls and webcasts. Our filings can also be obtained for free on the SEC’s Internet website at www.sec.gov. We are providing our website address solely for the information of investors.
Overview
We are a Maryland corporation and a real estate investment trust (“REIT”) which owns, acquires and leases properties for use in the restaurant and retail industries. Substantially all of our business is conducted through Four Corners Operating Partnership, LP (“FCPT OP”), a Delaware limited partnership of which we are a majority limited partner and our wholly owned subsidiary, Four Corners GP, LLC (“FCPT GP”), is its sole general partner. We believe that we have operated in conformity with the requirements for qualification and taxation as a REIT for the taxable year ended December 31, 2023, and we intend to continue to operate in a manner that will enable us to maintain our qualification as a REIT.
Our revenues are primarily generated by leasing properties to tenants through net lease arrangements under which the tenants are primarily responsible for ongoing costs relating to the properties, including utilities, property taxes, insurance, common area maintenance charges, and maintenance and repair costs. We focus on income producing properties leased to high quality tenants in major markets across the United States. We also generate revenues by operating seven LongHorn Steakhouse restaurants located in the San Antonio, Texas area (the “Kerrow Restaurant Operating Business”) pursuant to franchise agreements with Darden.
In addition to managing our existing properties, our strategy includes investing in additional restaurant and retail properties to grow and diversify our existing portfolio. We expect this acquisition strategy will decrease our reliance on Darden and help us gain exposure to non-restaurant retail properties over time. We intend to purchase properties that are well located, occupied by durable concepts, with creditworthy tenants whose operating cash flows are expected to meaningfully exceed their lease payments to us. We seek to improve the probability of successful tenant renewal at the end of initial lease terms by acquiring properties that have high levels of operator profitability compared to rent payments and have absolute rent levels that generally reflect market rates.
During the nine months ended September 30, 2024, FCPT acquired 42 properties for a total investment value of $136.7 million, including transaction costs. These properties are 100% occupied under net leases with a weighted average remaining lease term of 11.7 years.
At September 30, 2024, our lease portfolio had the following characteristics:
28
Results of Operations
During the three and nine months ended September 30, 2024 and 2023, we operated in two segments: real estate operations and restaurant operations. The following discussion includes the results of our operations for the three and nine months ended September 30, 2024 and 2023 as summarized in the table below:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
(In thousands) |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Rental revenue |
|
$ |
59,288 |
|
|
$ |
57,243 |
|
|
$ |
176,400 |
|
|
$ |
162,267 |
|
Restaurant revenue |
|
|
7,503 |
|
|
|
7,596 |
|
|
|
23,337 |
|
|
|
23,196 |
|
Total revenues |
|
|
66,791 |
|
|
|
64,839 |
|
|
|
199,737 |
|
|
|
185,463 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
General and administrative |
|
|
5,847 |
|
|
|
5,498 |
|
|
|
18,064 |
|
|
|
17,153 |
|
Depreciation and amortization |
|
|
13,606 |
|
|
|
13,418 |
|
|
|
40,418 |
|
|
|
37,411 |
|
Property expenses |
|
|
2,614 |
|
|
|
2,916 |
|
|
|
8,531 |
|
|
|
8,742 |
|
Restaurant expenses |
|
|
7,029 |
|
|
|
7,229 |
|
|
|
21,925 |
|
|
|
21,721 |
|
Total operating expenses |
|
|
29,096 |
|
|
|
29,061 |
|
|
|
88,938 |
|
|
|
85,027 |
|
Interest expense |
|
|
(12,324 |
) |
|
|
(12,276 |
) |
|
|
(36,929 |
) |
|
|
(32,245 |
) |
Other income |
|
|
331 |
|
|
|
283 |
|
|
|
721 |
|
|
|
809 |
|
Realized gain on sale, net |
|
|
— |
|
|
|
318 |
|
|
|
— |
|
|
|
2,053 |
|
Income tax (expense) benefit |
|
|
(90 |
) |
|
|
89 |
|
|
|
(203 |
) |
|
|
(50 |
) |
Net income |
|
|
25,612 |
|
|
|
24,192 |
|
|
|
74,388 |
|
|
|
71,003 |
|
Net income attributable to noncontrolling interest |
|
|
(31 |
) |
|
|
(31 |
) |
|
|
(91 |
) |
|
|
(92 |
) |
Net Income Attributable to Common Shareholders |
|
$ |
25,581 |
|
|
$ |
24,161 |
|
|
$ |
74,297 |
|
|
$ |
70,911 |
|
Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023
Real Estate Operations
Rental Revenue
Rental revenue increased $2.0 million, or 3.6%, during the three months ended September 30, 2024 compared to the three months ended September 30, 2023. This increase was due primarily to the acquisition of 48 leased properties during the year-over-year period from October 1, 2023 through September 30, 2024, which was partially offset by the disposal of one property during the period. We do not anticipate the disposition to have a material impact on future revenue. During the three months ended September 30, 2024, we recognized variable lease revenue, including costs paid by the lessor and reimbursed by the lessees within rental revenue of $2.1 million as compared to $2.4 million during the three months ended September 30, 2023. These amounts are also recognized in property expenses.
We recognize rental income on a straight-line basis to include the effect of base rent escalators, and free rent periods, if any.
General and Administrative Expenses
General and administrative expense is comprised of costs associated with staff, office rent, legal, accounting, information technology, and other professional services and other administrative services in association with our real estate operations and our REIT structure and reporting requirements. General and administrative expenses increased $349 thousand, or 6.3%, in the three months ended September 30, 2024 compared to the three months ended September 30, 2023, primarily due to an increase in cash compensation-related expenses and increased non-cash stock compensation expense.
Depreciation and Amortization Expense
Depreciation and amortization expense represents the depreciation on real estate investments that have estimated lives ranging from two to fifty-five years. Depreciation and amortization increased by approximately $0.2 million, or 1.4%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, due to the acquisition of 48 properties, during the year-over-year period from October 1, 2023 through September 30, 2024.
29
Property Expense
We record all tenant expenses, both reimbursed and non-reimbursed, to property expense. We also record initial direct costs (lease negotiation and other previously capitalizable transaction expenses) as property expenses. Other property expenses consist of expenses incurred on vacant properties, abandoned deal costs, and franchise taxes. During the three months ended September 30, 2024, we recorded property expenses of $2.6 million, of which $2.1 million was reimbursed by tenants. During the three months ended September 30, 2023, we recorded property expenses of $2.9 million, of which $2.4 million was reimbursed by tenants.
Interest Expense
We incur interest expense on our $515 million of term loans, any outstanding borrowings on our revolving credit facility, interest rate swaps, and our $625 million of senior fixed rate notes. Interest expense increased by less than $0.1 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, primarily due to the issuance of the additional $85 million term loan in March 2024, which was offset by a reduction of interest expense due to the repayment of the $50 million senior unsecured fixed rate note.
Realized Gain on Sale, Net
During the three months ended September 30, 2024, the Company did not sell any properties. During the three months ended September 30, 2023, the Company sold two properties with a net book value of $9.5 million for a realized gain on sale of $318 thousand.
Income Taxes
During the three months ended September 30, 2024, our income tax expense was $90 thousand. During the three months ended September 30, 2023, we recorded an income tax benefit of $89 thousand. The income tax provision consists of federal, state, and local income taxes incurred by the Kerrow Restaurant Operating Business, and state and local income taxes we incurred on our lease portfolio. During the three months ended September 30, 2024, the net deferred tax asset at the Kerrow Restaurant Operating Business increased by $61 thousand. This deferred tax benefit related to routine book-tax differences and was recorded within income tax expense in the Consolidated Statements of Income.
Restaurant Operations
Restaurant revenues decreased by less than $0.1 million during the three months ended September 30, 2024 compared to the three months ended September 30, 2023 primarily due to city construction projects outside two locations, partially offset by higher net pricing.
Total restaurant expenses decreased by $200 thousand, or 2.8%, during the three months ended September 30, 2024 compared to the three months ended September 30, 2023, primarily due to improved staffing and a reduction in overtime hours.
Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023
Real Estate Operations
Rental Revenue
Rental revenue increased $14.1 million, or 8.7%, during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. This increase was due to the acquisition of 48 leased properties during the year-over-year period from October 1, 2023 through September 30, 2024, which was partially offset by the disposal of one property during the period. We do not anticipate the disposition to have a material impact on future revenue. During the nine months ended September 30, 2024, we recognized variable lease revenue, including costs paid by the lessor and reimbursed by the lessees within rental revenue of $7.1 million as compared to $7.1 million during the nine months ended September 30, 2023. These amounts are also recognized in property expenses.
We recognize rental income on a straight-line basis to include the effect of base rent escalators, and free rent periods, if any.
General and Administrative Expenses
General and administrative expense is comprised of costs associated with staff, office rent, legal, accounting, information technology, and other professional services and other administrative services in association with our real estate operations and our REIT structure and reporting requirements. General and administrative expenses increased $911 thousand, or 5.3%, in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, primarily due to an increase in compensation-related expenses and increased non-cash stock compensation expense.
Depreciation and Amortization Expense
Depreciation and amortization expense represents the depreciation on real estate investments that have estimated lives ranging from two to fifty-five years. Depreciation and amortization increased by approximately $3.0 million, or 8.0%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, due to the acquisition of 48 properties, during the year-over-year period from October 1, 2023 through September 30, 2024.
30
Property Expense
We record all tenant expenses, both reimbursed and non-reimbursed, to property expense. We also record initial direct costs (lease negotiation and other previously capitalizable transaction expenses) as property expenses. Other property expenses consist of expenses incurred on vacant properties and franchise taxes. During the nine months ended September 30, 2024, we recorded property expenses of $8.5 million, of which $7.1 million was reimbursed by tenants. During the nine months ended September 30, 2023, we recorded property expenses of $8.7 million, of which $7.1 million was reimbursed by tenants.
Interest Expense
We incur interest expense on our $515 million of term loans, any outstanding borrowings on our revolving credit facility, interest rate swaps, and our $625 million of senior fixed rate notes. Interest expense increased $4.7 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, primarily due to the issuance of $100 million of senior fixed rate notes in July 2023 and the issuance of the additional $85 million term loan in March 2024, which was partially offset by a reduction of interest expense due to the repayment of the $50 million senior unsecured fixed rate note.
Realized Gain on Sale, Net
During the nine months ended September 30, 2024, the Company did not sell any properties. During the nine months ended September 30, 2023, the Company sold six properties with a combined net book value of $20.6 million for a realized gain on sale of $2.1 million.
Income Taxes
During the nine months ended September 30, 2024 and 2023, our income tax expense was $203 thousand and $50 thousand, respectively. The income tax provision consists of federal, state, and local income taxes incurred by the Kerrow Restaurant Operating Business, and state and local income taxes we incurred on our lease portfolio. During the nine months ended September 30, 2024, the net deferred tax asset at the Kerrow Restaurant Operating Business increased by $153 thousand. This deferred tax benefit related to routine book-tax differences and was recorded within income tax expense in the Consolidated Statements of Income.
Restaurant Operations
Restaurant revenues increased by $141 thousand, or 0.6%, during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily due to higher net pricing, partially offset by city construction projects outside two locations.
Total restaurant expenses increased by $204 thousand, or 0.9%, during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, primarily due to an increase in cost of goods sold.
Critical Accounting Policies
The preparation of FCPT’s consolidated financial statements in conformance with U.S. GAAP requires management to make estimates on assumptions that affect the reported amounts of assets, liabilities, revenues and expenses as well as other disclosures in the financial statements. On an ongoing basis, management evaluates its estimates and assumptions; however, actual results may differ from these estimates and assumptions, which in turn could have a material impact on our financial statements. A summary of FCPT’s critical accounting policies is included in our Annual Report on Form 10-K for the year ended December 31, 2023 in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates.” Management believes those critical accounting policies, among others, affect our more significant estimates and assumptions used in the preparation of our consolidated financial statements.
New Accounting Standards
A discussion of new accounting standards and the possible effects of these standards on our consolidated financial statements is included in Note 2 - Summary of Significant Accounting Policies of our consolidated financial statements, included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Liquidity and Financial Condition
At September 30, 2024, we had $44.5 million of cash and cash equivalents and $250 million of borrowing capacity under our revolving credit facility, which expires on November 9, 2025, subject to our ability to extend the term for one additional six-month period to May 9, 2026. The revolving credit facility provides for a letter of credit sub-limit of $25 million. See Note 6 - Debt, Net of Deferred Financing Costs included in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information. As of September 30, 2024, we had no outstanding borrowings under the revolving credit facility. At September 30, 2024, the weighted average interest rate on the term loans, after consideration of the interest rate hedges, was 3.76%.
On March 14, 2024, FCPT entered into an Incremental Amendment to the Third Amended and Restated Revolving Credit and Term Loan Agreement with a group of existing lenders (the “Credit Agreement”). The Company utilized the accordion feature of the Third Amended and Restated Revolving Credit and Term Loan Agreement to enter into a new $85 million term loan (the “Term Loan”), the
31
proceeds from which were used to repay the $50 million of senior unsecured notes payable due in June 2024. The Term Loan matures in March 2027 with one twelve month extension exercisable at the Company’s option, subject to certain conditions.
We have entered into the following interest rate swaps to hedge the interest rate variability associated with the term loan portion of our credit facility. These hedging agreements were entered into to mitigate the interest rate risk inherent in FCPT OP’s variable rate debt and not for trading purposes. These swaps are accounted for as cash flow hedges with all interest income and expense recorded as a component of net income and other valuation changes recorded as a component of other comprehensive income.
Product |
|
Notional Amount |
|
|
Effective Date |
|
Maturity Date |
|
Fixed Rate to Pay |
|
Variable Rate to Receive |
|
Swap |
|
$ |
150,000 |
|
|
11/09/2022 |
|
11/09/2024 |
|
1.88% |
|
Daily Simple SOFR + 10 bps |
Swap |
|
|
50,000 |
|
|
10/25/2022 |
|
11/09/2025 |
|
0.44% |
|
Daily Simple SOFR + 10 bps |
Swap |
|
|
25,000 |
|
|
11/09/2022 |
|
11/09/2025 |
|
2.70% |
|
Daily Simple SOFR + 10 bps |
Swap |
|
|
25,000 |
|
|
03/09/2023 |
|
11/09/2026 |
|
4.12% |
|
Daily Simple SOFR + 10 bps |
Swap (1) |
|
|
50,000 |
|
|
11/09/2023 |
|
11/09/2025 |
|
0.82% |
|
Daily Simple SOFR + 10 bps |
Swap |
|
|
25,000 |
|
|
11/09/2023 |
|
11/09/2026 |
|
3.65% |
|
Daily Simple SOFR + 10 bps |
Swap |
|
|
25,000 |
|
|
11/09/2023 |
|
11/09/2028 |
|
4.25% |
|
Daily Simple SOFR + 10 bps |
Swap |
|
|
25,000 |
|
|
11/13/2023 |
|
11/09/2028 |
|
4.42% |
|
Daily Simple SOFR + 10 bps |
Swap (2) |
|
|
25,000 |
|
|
04/09/2024 |
|
04/09/2029 |
|
4.04% |
|
Daily Simple SOFR + 10 bps |
Swap (2) |
|
|
30,000 |
|
|
04/09/2024 |
|
04/09/2029 |
|
3.91% |
|
Daily Simple SOFR + 10 bps |
Swap (2) |
|
|
30,000 |
|
|
04/09/2024 |
|
04/09/2029 |
|
3.88% |
|
Daily Simple SOFR + 10 bps |
Swap (2) |
|
|
25,000 |
|
|
11/09/2024 |
|
11/09/2029 |
|
3.97% |
|
Daily Simple SOFR + 10 bps |
Swap |
|
|
50,000 |
|
|
11/10/2025 |
|
11/09/2027 |
|
1.48% |
|
Daily Simple SOFR + 10 bps |
Swap |
|
|
50,000 |
|
|
11/10/2025 |
|
11/09/2027 |
|
1.54% |
|
Daily Simple SOFR + 10 bps |
Swap |
|
|
25,000 |
|
|
11/10/2025 |
|
11/09/2028 |
|
2.25% |
|
1 month Term SOFR |
Swap |
|
|
50,000 |
|
|
11/10/2025 |
|
11/09/2028 |
|
1.49% |
|
Daily Simple SOFR + 10 bps |
Swap |
|
|
50,000 |
|
|
11/10/2025 |
|
11/09/2028 |
|
2.02% |
|
Daily Simple SOFR + 10 bps |
The Company also enters into forward-starting interest rate swap agreements to hedge against changes in future cash flows resulting from changes in interest rates from the trade date through the forecasted issuance date of debt. During the nine months ended September 30, 2024, the Company terminated one cash flow hedge in connection with the $85 million Term Loan that was entered into on March 11, 2024 and funded on March 14, 2024. This cash flow hedge had a total notional value of $25 million and was entered into in August 2023 to hedge the interest rate on a future offering or term loan. The swap was terminated on February 28, 2024, with the corresponding asset of $211 thousand which will be amortized over the next 10 years as an increase to interest expense.
The Company has issued the following $625 million of senior unsecured fixed rate notes in private placements pursuant to note purchase agreements with the various purchasers.
|
|
Maturity |
|
Interest |
|
|
Outstanding Balance |
|
||
($ in thousands) |
|
Date |
|
Rate |
|
|
September 30, 2024 |
|
||
Notes Payable: |
|
|
|
|
|
|
|
|
||
Senior unsecured fixed rate note, issued December 2018 |
|
Dec 2026 |
|
|
4.63 |
% |
|
$ |
50,000 |
|
Senior unsecured fixed rate note, issued June 2017 |
|
Jun 2027 |
|
|
4.93 |
% |
|
|
75,000 |
|
Senior unsecured fixed rate note, issued December 2018 |
|
Dec 2028 |
|
|
4.76 |
% |
|
|
50,000 |
|
Senior unsecured fixed rate note, issued April 2021 |
|
Apr 2029 |
|
|
2.74 |
% |
|
|
50,000 |
|
Senior unsecured fixed rate note, issued March 2020 |
|
Jun 2029 |
|
|
3.15 |
% |
|
|
50,000 |
|
Senior unsecured fixed rate note, issued March 2020 |
|
Apr 2030 |
|
|
3.20 |
% |
|
|
75,000 |
|
Senior unsecured fixed rate note, issued March 2022 |
|
Mar 2031 |
|
|
3.09 |
% |
|
|
50,000 |
|
Senior unsecured fixed rate note, issued April 2021 |
|
Apr 2031 |
|
|
2.99 |
% |
|
|
50,000 |
|
Senior unsecured fixed rate note, issued March 2022 |
|
Mar 2032 |
|
|
3.11 |
% |
|
|
75,000 |
|
Senior unsecured fixed rate note, issued July 2023 |
|
Jul 2033 |
|
|
6.44 |
% |
|
|
100,000 |
|
Total Senior Unsecured Fixed Rate Notes |
|
|
|
|
|
|
$ |
625,000 |
|
|
On September 17, 2024, the Company terminated the prior ATM program and entered into a new ATM program (the "ATM programs"), pursuant to which shares of the Company’s common stock having an aggregate gross sales price of up to $500.0 million may be offered and sold (1) by the Company to, or through, a consortium of banks acting as its sales agents or (2) by a consortium of banks acting as forward sellers on behalf of any forward purchasers contemplated thereunder, in each case by means of ordinary brokers’ transactions on the NYSE or otherwise at market prices prevailing at the time of sale, at prices related to prevailing market prices or at
32
negotiated prices, by privately negotiated transactions (including block sales) or by any other methods permitted by applicable law. The ATM program replaces the Company's previous $450.0 million ATM program (the "prior ATM program" and, together with the ATM program, the "ATM programs"), which was established in November 2022, under which the Company had sold shares of its common stock having an aggregate gross sales price of $404.8 million through September 17, 2024. In connection with the Company’s ATM programs, the Company may enter into forward sale agreements with certain financial institutions acting as forward purchasers whereby, at the Company's discretion, the forward purchasers may borrow and sell shares of common stock. The use of forward sale agreements allows the Company to lock in a share price on the sale of shares of common stock at the time the respective forward sale agreements are executed but defer settling the forward sale agreements and receiving the proceeds from the sale of shares until a later date.
During the three months ended September 30, 2024, the Company executed forward sale agreements with financial institutions acting as forward purchasers under the ATM programs to sell 4,131,747 shares of common stock at a weighted average sales price of $27.79 per share before sales commissions and offering expenses. During the three months ended September 30, 2024, the Company physically settled a portion of its forward sale agreements and issued 950,000 shares at a gross weighted average sales price of $26.81. After sales commissions and offering expenses, these shares were sold at a net weighted average share price of $26.41 for net proceeds of $25.1 million. At September 30, 2024, the Company had outstanding forward sale agreement to sell 3,181,747 shares of common stock at a weighted average sales price of $28.08 before sales commission and offering expenses.
During the three months ended September 30, 2024, the Company issued 4,412,272 shares under the ATM programs, including physically settled forward sale agreements, at a gross weighted average share price of $26.74. After sales commissions and offering expenses, these shares were issued at a net weighted average share price of $26.30 for net proceeds of $116.0 million. During the nine months ended September 30, 2024, the Company issued 4,792,842 shares under the ATM programs, including physically settled forward sale agreements, at a gross weighted average share price of $26.63. After sales commissions and offering expenses, these shares were sold at a net weighted average share price of $26.15 for net proceeds of $125.3 million.
The Company did not execute or settle forward sale agreements during the three months ended September 30, 2023. During the nine months ended September 30, 2023, the Company executed forward sale agreements with financial institutions acting as forward purchasers under the prior ATM program to sell 1,907,946 shares of common stock at a weighted average sales price of $27.73 per share before sales commissions and offering expenses. During the nine months ended September 30, 2023, the Company physically settled its forward sale agreements under the prior ATM program and issued 4,437,970 shares at a gross weighted average share price of $27.32. After sales commissions and offering expenses, these shares were sold at a net weighted average share price of $26.88 for net proceeds of $119.3 million.
During the three months ended September 30, 2023, the Company did not issue any shares under the prior ATM program. During the nine months ended September 30, 2023, the Company issued 4,787,970 shares under the prior ATM program, including physically settled forward sale agreements, at a gross weighted average share price of $27.23. After sales commissions and offering expenses, these shares were sold at a net weighted average share price of $26.79 for net proceeds of $128.2 million.
At September 30, 2024, there was $483.3 million available for issuance under the ATM programs.
On a short-term basis, our principal demands for funds will be for operating expenses, distributions to stockholders and interest and principal on current and any future debt financings. We expect to fund our operating expenses and other short-term liquidity requirements, capital expenditures, payment of principal and interest on our outstanding indebtedness, property improvements, re-leasing costs and cash distributions to common stockholders, primarily through cash provided by operating activities, and, for acquisitions, investments, and other capital expenditures, from borrowings under our $250 million revolving credit facility.
On a long-term basis, our principal demands for funds include payment of dividends, financing of property acquisitions, and scheduled debt maturities. We plan to meet our long-term capital needs by issuing debt or equity securities or by obtaining asset-level financing, subject to market conditions. In addition, we may issue common stock to permanently finance properties that were financed on an intermediate basis by our revolving credit facility or other indebtedness. In the future, we may also acquire properties by issuing partnership interests of FCPT OP in exchange for property owned by third parties. Our common partnership interests would be redeemable for cash or shares of our common stock, at FCPT’s election.
We continually evaluate alternative financing and believe that we can obtain financing on reasonable terms. However, we cannot be assured that we will have access to the capital markets at times and at terms that are acceptable to us. We expect that our primary uses of capital will be for property and other asset acquisitions and the funding of tenant improvements and other capital expenditures, and debt refinancing.
Because the properties in our portfolio are generally leased to tenants under net leases, where the tenant is responsible for property operating costs and expenses, our exposure to rising property operating costs due to inflation is mitigated. Interest rates and other factors, such as occupancy, rental rate and the financial condition of our tenants, influence our performance more so than does inflation. Changes in interest rates do not necessarily correlate with inflation rates or changes in inflation rates. As described above, we currently offer leases that provide for payments of base rent with scheduled annual fixed increases.
33
Supplemental Financial Measures
The following tables presents a reconciliation of U.S. GAAP net income to National Association of Real Estate Investment Trusts (“NAREIT”) funds from operations (“FFO”) and adjusted funds from operations (“AFFO”).
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
(In thousands, except share and per share data) |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Net income |
|
$ |
25,612 |
|
|
$ |
24,192 |
|
|
$ |
74,388 |
|
|
$ |
71,003 |
|
Depreciation and amortization on real estate investments |
|
|
13,572 |
|
|
|
13,382 |
|
|
|
40,312 |
|
|
|
37,308 |
|
Realized gain on sales of real estate |
|
|
— |
|
|
|
(318 |
) |
|
|
— |
|
|
|
(2,053 |
) |
FFO (as defined by NAREIT) |
|
$ |
39,184 |
|
|
$ |
37,256 |
|
|
$ |
114,700 |
|
|
$ |
106,258 |
|
Straight-line rent |
|
|
(1,056 |
) |
|
|
(1,719 |
) |
|
|
(3,343 |
) |
|
|
(4,358 |
) |
Deferred income tax benefit (1) |
|
|
(61 |
) |
|
|
(184 |
) |
|
|
(153 |
) |
|
|
(232 |
) |
Stock-based compensation |
|
|
1,815 |
|
|
|
1,472 |
|
|
|
5,186 |
|
|
|
4,798 |
|
Non-cash amortization of deferred financing costs |
|
|
653 |
|
|
|
592 |
|
|
|
1,944 |
|
|
|
1,720 |
|
Non-real estate investment depreciation |
|
|
34 |
|
|
|
36 |
|
|
|
106 |
|
|
|
103 |
|
Other non-cash revenue adjustments |
|
|
511 |
|
|
|
526 |
|
|
|
1,563 |
|
|
|
1,510 |
|
Adjusted Funds from Operations (AFFO) |
|
$ |
41,080 |
|
|
$ |
37,979 |
|
|
$ |
120,003 |
|
|
$ |
109,799 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Fully diluted shares outstanding (2) |
|
|
94,992,554 |
|
|
|
90,710,431 |
|
|
|
93,176,206 |
|
|
|
88,219,693 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
FFO per diluted share |
|
$ |
0.41 |
|
|
$ |
0.41 |
|
|
$ |
1.23 |
|
|
$ |
1.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
AFFO per diluted share |
|
$ |
0.43 |
|
|
$ |
0.42 |
|
|
$ |
1.29 |
|
|
$ |
1.24 |
|
Non-GAAP Definitions
The certain non-GAAP financial measures included above management believes are helpful in understanding our business, as further described below. Our definition and calculation of non-GAAP financial measures may differ from those of other REITs and therefore may not be comparable. The non-GAAP measures should not be considered an alternative to net income as an indicator of our performance and should be considered only a supplement to net income, and to cash flows from operating, investing or financing activities as a measure of profitability and/or liquidity, computed in accordance with U.S. GAAP.
FFO is a supplemental measure of our performance which should be considered along with, but not as an alternative to, net income and cash provided by operating activities as a measure of operating performance and liquidity. We calculate FFO in accordance with the standards established by the NAREIT. FFO represents net income (loss) computed in accordance with U.S. GAAP, excluding gains (or losses) from sales of property and undepreciated land and impairment write-downs of depreciable real estate, plus real estate related depreciation and amortization (excluding amortization of deferred financing costs) and after adjustments for unconsolidated partnerships and joint ventures. We also omit the tax impact of non-FFO producing activities from FFO determined in accordance with the NAREIT definition.
Our management uses FFO as a supplemental performance measure because, in excluding real estate related depreciation and amortization and gains and losses from property dispositions, it provides a performance measure that, when compared year over year, captures trends in occupancy rates, rental rates and operating costs. We offer this measure because we recognize that FFO will be used by investors as a basis to compare our operating performance with that of other REITs. However, because FFO excludes depreciation and amortization and captures neither the changes in the value of our properties that result from use or market conditions, nor the level of capital expenditures and capitalized leasing commissions necessary to maintain the operating performance of our properties, all of which have real economic effect and could materially impact our financial condition and results from operations, the utility of FFO as a measure of our performance is limited. FFO is a non-GAAP measure and should not be considered a measure of liquidity including our ability to pay dividends or make distributions. In addition, our calculations of FFO are not necessarily comparable to FFO as calculated by other REITs that do not use the same definition or implementation guidelines or interpret the standards differently from us. Investors in our securities should not rely on these measures as a substitute for any U.S. GAAP measure, including net income.
34
Adjusted Funds from Operations is a non-U.S. GAAP measure that is used as a supplemental operating measure specifically for comparing year-over-year ability to fund dividend distribution from operating activities. AFFO is used by us as a basis to address our ability to fund our dividend payments. We calculate AFFO by adding to or subtracting from FFO:
AFFO is not intended to represent cash flow from operations for the period, and is only intended to provide an additional measure of performance by adjusting the effect of certain items noted above included in FFO. AFFO is a widely reported measure by other REITs; however, other REITs may use different methodologies for calculating AFFO and, accordingly, our AFFO may not be comparable to other REITs.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Information concerning market risk is incorporated herein by reference to Part II, Item 7A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, as supplemented by the information under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part I, Item 1A titled “Risk Factors.” Other than the developments described thereunder, including changes in the fair values of our assets, there have been no other material changes in our quantitative or qualitative exposure to market risk since December 31, 2023.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures were effective and were operating at a reasonable assurance level.
Changes in Internal Control over Financial Reporting
During the third quarter of 2024, there have been no changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
35
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
In the ordinary course of our business, we are party to various claims and legal actions that management believes are routine in nature and incidental to the operation of our business. Management believes that the outcome of these proceedings will not have a material adverse effect upon our operations, financial condition or liquidity.
Item 1A. Risk Factors.
There have been no material changes to the risk factors as disclosed in Part I, Item 1A. “Risk Factors” beginning on page 12 of our Annual Report on Form 10-K for the year ended December 31, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
36
Item 6. Exhibits.
The exhibits issued in the accompanying Index to Exhibits are filed as part of this Form 10-Q and incorporated herein by reference.
INDEX TO EXHIBITS
Exhibit Number |
|
Description |
3.1 |
|
|
3.2.1 |
|
|
3.2.2 |
|
|
10.1 |
|
|
31 (a)* |
|
|
31 (b)* |
|
|
32 (a)* |
|
|
32 (b)* |
|
|
101* |
|
The following materials from Four Corners Property Trust, Inc.’s Quarterly Report on Form 10-Q for the three months ended September 30, 2024 formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statement of Equity, (v) the Consolidated Statements of Cash Flows, and (vi) related notes to these consolidated financial statements. |
104* |
|
The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2024, formatted in iXBRL and contained in Exhibit 101. |
* Filed herewith
37
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
|
|
|
|
|
FOUR CORNERS PROPERTY TRUST, INC. |
|
|
|
|
|
|
|
|
|
Dated: |
October 31, 2024 |
By: |
/s/ William H. Lenehan |
|
|
|
William H. Lenehan |
|
|
|
President and Chief Executive Officer |
|
|
|
(Principal Executive Officer) |
|
|
|
|
|
|
|
|
Dated: |
October 31, 2024 |
By: |
/s/ Patrick L. Wernig |
|
|
|
Patrick L. Wernig |
|
|
|
Chief Financial Officer |
|
|
|
(Principal Financial Officer) |
|
|
|
|
|
|
|
|
Dated: |
October 31, 2024 |
By: |
/s/ Niccole M. Stewart |
|
|
|
Niccole M. Stewart |
|
|
|
Chief Accounting Officer |
|
|
|
(Principal Accounting Officer) |
38
EXHIBIT 31(a)
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, William H. Lenehan, certify that:
Date: |
October 31, 2024 |
|
|
|
/s/ William H. Lenehan |
|
William H. Lenehan |
|
President and Chief Executive Officer |
EXHIBIT 31(b)
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Patrick L. Wernig, certify that:
Date: |
October 31, 2024 |
|
|
|
/s/ Patrick L. Wernig |
|
Patrick L. Wernig |
|
Chief Financial Officer |
EXHIBIT 32(a)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Four Corners Property Trust, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, William H. Lenehan, President and Chief Executive Officer of the Company, certify, to my knowledge, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
Date: |
October 31, 2024 |
|
|
|
/s/ William H. Lenehan |
|
William H. Lenehan |
|
President and Chief Executive Officer |
EXHIBIT 32(b)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Four Corners Property Trust, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Patrick L. Wernig, Chief Financial Officer of the Company, certify, to my knowledge, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
Date: |
October 31, 2024 |
|
|
|
/s/ Patrick L. Wernig |
|
Patrick L. Wernig |
|
Chief Financial Officer |