Q4 2019 Earnings Call

Second with respect to diversification the 50 acquired properties represent 34 different brands 17 of which are new to our portfolio.

For half of the properties acquired in the quarter where the result of our outparcel strategy with closings from WPGC Brookfield, Saratoga Saratoga n. These transactions have taken time and perseverance but have been worth even the quality of the assets. We have now announced over $270 million in our partial transactions. These properties are characterized by strong National Brands lower rents as many around leases and our substantial damage to the brands corporate or franchise or entity our recent expansion to select a Jason retail outside of restaurants has continued but we remain highly selective in our approach the problems are similar qualities as our high-quality restaurant locations with comparable buildings or lot sizes and net lease structures as of the year end 2019 fcpt on 10:00 on restaurant property properties, representing 1% of Total Rental Revenue, if we include the announced out personal pipeline FCP T's exposure to non restaurant retail is 27 properties representing 2.7% of total revenue as of the end of the year.

over the past form

We've made meaningful progress on our Pipeline and start a 2020 with approximately 132 million of an ounce but not yet closed out partial transactions, which we expect will close in 20 20 in Rowley tranches as the properties became available to be conveyed.

We look forward to leveraging our deal sourcing and closing and grow both in the restaurant and non restaurant at least sectors are tenants overall continue to perform. Well, this holds true for some of our largest thousand exposures with Olive Garden Longhorn and Chili's reporting same-store sales growth in the most recent quarter of 1.5 6.7 and 2% Respectively. We were particularly impressed with the growth of digital and to-go orders at Olive Garden which now make up 17% of brand sales after another strong quarter of north of 15% growth while we would acknowledge this and other restaurant Brands fcpt portfolio has by and large avoided them and the portfolio remains very very healthy. Finally a couple of comments on the team.

First we continue.

Be very pleased with the growth of our team both the maturation of the existing members in the contribution of new team members who are growing capabilities. We expect to continue to add to the team in 2020, but I'm fortunate enough to do it step-by-step and with mine towards our team based culture II a note of congratulations to Jim brat our general counsel who was promoted last week to also serve as company's Chief transaction off. Jim's deep real estate transaction experience has been critical to our acquisition strategy. Thank you. Jim Now Jerry will take you through our financial results. Thanks Bill. We generated $30,000 million cash rental income in the fourth quarter after excluding non-cash straight line rental adjustments and on a run-rate basis the current annual cash base rent for leases in place. As of December Thirty One 2019 is 139.4 million. This is a 6.5% increase in our run rate cash rental level versus the Third Rate or excuse me per month.

The third quarter and highlights the growth.

From the fourth quarter Acquisitions many of which closed in December is Bill highlighted are weighted average tenure annual cash rent escalated remains that approximately 1.5% month. We reported at $0.02 or 5.9% increase in their quarter-over-quarter results in the quarter and for the full year, we reported 2.46 and 10.3 million respectively of Cash General and administrative expenses after excluding stock-based compensation for 2020. We are setting guidance of a big family twelve million for Cash General and administrative expenses. This increases a reflection of incremental additions. We are making to the investment asset management and property management team wage and supporting systems turning to the balance sheet and the fourth quarter. We fully settled the forward Equity sales agreement. We had entered into last April at an average offering wage.

Of $28.97.

For gross proceeds of 46.5 million we ended the quarter well-capitalized to support our investment activity with our net debt to adjusted ebitda standing at five point two times including a quarter Indian ending balance of 52 million on a revolver and 98 million remaining on the 250 million dollar facility should be remain committed to maintaining a conservative balance sheet and stayed under debt leverage of five point five to six times net debt-to-ebitda re I'll now turn it back over to bill for closing remarks.

Operator can we open it up to Q&A? Yes, sir. We will now begin the question-and-answer session to actually question. You may press * then 1 on your touchtone phone. If you are using a speaker phone, please pick up your handset before pressing the keys to withdraw your question, please press star than to at this time will pause momentarily to assemble our roster.

And our first question will come from with berenberg, please go ahead.

Mister cross that are you there

Yeah, can you hear me? Yes, you're alive and you can ask your question. Yeah, just wanted to get a sense of how much is left to acquire from Washington Prime Brookfield same age and. You have a hundred and thirty two million closing in 2020. What's left amongst those four?

The the 132 is the year-end balance from those different outparcel transactions. We've closed a small number to date, but we expect all of those to close in 2020. So it's just just shy of that 132.

Okay, and then should we expect similar types of agreements to be announced this year? How should we thinking about these larger kind of transactions? We're working on a different transactions like that all the time. Okay. What about just one on dispositions? I didn't see any decisions in 2019. Can you just remind us kind of how you think about this position Thursday? We do it opportunistically we get inbound inquiries, you know all the time every week, but we do it we do it opportunistically typically into the 1031 exchange Market. Okay. Thanks.

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and our next question will come from Sheila McGrath of evercore is I please go ahead. Yes, good morning on the Acquisitions in the quarter. The place rent was $20,000 a square foot. Well below your portfolio average of thirty. Just wondering is this driven by market location? Are these mostly ground leases or would you characterize the wrong place rents? Well below Market. Thanks Sheila. I would say it's just a mix in the quarter of of more ground leases.

Of the portfolio right now. Do you disclose what percent of the portfolio is ground leases versus you know, we don't I guess the color I would provide is that 70% of our portfolio is Dart and that's well over five times coverage. So very modest rents given the performance I would argue very akin to the kind of ratios you back on a on a ground lease and then the out parcel transactions that we've been buying we don't disclose an exact number but I would say roughly seventy percent of them have been ground leases and ugh. It's just a very healthy credit story. It's just hard to deploy Capital because the rents that you're playing the cap rate to are so low that the property purchase price is low and I think we continue to see that as we announced more of these transactions.

Okay, great one last.

But if you could just give us an update on the Crystal Store locations do you expect these leases will be affirmed. They've communicated to us multiple times that they will we don't anticipate any change in the rent there. Those stores are very healthy with with moderate rental sales low-rent to sales. Okay. Great. Thank you.

And our next question will come from calling wings with Raymond James, please go ahead. Thanks. Good morning Bill. Good morning, Jerry. Jeff wanted to discuss the Dual and multi-tenant properties. You've acquired recently. Just curious. Your thoughts is the market for some of these multi-tenant assets. I'd be less efficient than the market for say single-tenant properties. I think the pricing tends to be a tad better. Sometimes you don't get net lease on the roof coverage, but that can be warrantied estimated. I would also say what typically buying newer properties there. So for example, the the pot belly Verve and we just bought was was built in eighteen and I would also say there's some brand formats that prefer multi-tenant and so

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You get exposure to those Brands. That's the direction you're going to go. But in almost every case this is you know, two different brands attached to each other. It's not it's a far cry from a strip center or anything along those lines. I think the last thing I would say is they tend to be more generic boxes. So the ability to refill. Ugh, these are a lot a lot easier than uh, a black folk stand-alone building.

That's helpful. And maybe just along those lines. How do you think about coverages? I mean just as you think about an underwriting the the tenants in the properties just maybe talk about rent coverages. And I mean, is there a baby a little bit higher threshold on a coverage from a coverage standpoint? I think the the coverages are probably very similar the one time a call and is there tends to be to use cases like Banks and sell stores where the for wall economics is not as clear as a as a restaurant so folks in Olive Garden that covers, uh, you know, five times you sort of understand what the economic proposition is a bank branch, for example, it may happen deposits. But how do you allocate the corporate overhead of JPMorgan to an individual Branch store or the subscription service revenue of Verizon to an individual Verizon store off.

We tended to be very cautious and and stuck with the high.

quality National brands

Okay, and maybe along these lines they'll correct me if I'm wrong, but I don't believe anything with a either a dual or multi-tenant that's far has been closed with without a restaurant component. Would you be open to looking at some of these these type of properties without a restaurant component?

Just looking here. I think actually we have one that was a US Cellular and a great Great Clips. But but I think at the end of the day, we would we would look at both Jewel tennis without a restaurant. They very often have a restaurant anchoring them because restaurants drive so much traffic, but but we would look at it at it in any case.

Okay, and then two other ones for me here just in terms of first just curious. I mean you've had some success. I think that it's been maybe one that's been announced on the unit front. I'm just curious kind of as you think about your acquisition Pipeline and you think about discussions with with potential sellers. How much is that even coming up as a potential potential source of deal flow we talked about it regularly, but the star sort of have to align for those deals to work we have and and frankly wage has good access to normal way Capital that it's sometimes easier just to to raise normal way Equity to pay for properties, but we're always looking in in dialogue with people but as you mentioned Thursday, it's a rare that they that they are successful.

okay, one laughing for me and I'll turn it over just

Recognizing it didn't move much but didn't notice that the coverage in that other brands non Dart and bucket actually increased slightly. And again, there were a lot of properties that are actually added to that that that bucket a quarter was this uptick reflect any change in terms of tenet health, or is it just a kind of a function of the properties that got added to the pool? I'd say it's just the ladder rack. I wouldn't have any Grand takeaways from that.

Fair enough. I'll turn it over. Thanks calling.

And our next question will come from Anthony with JPMorgan, please go ahead.

Okay. Thanks. You're looking at areas outside of restaurants. Can you note any areas that either your redlining at this point or particularly attracted to right now?

I would say we're open minded. We we've tended to not spend much time on Big Box net leads.

And I would say we were attracted to a number of different sectors to I'll just throw out there would be Auto Service and medical retail things like dialysis centers clinics. We've tended to stay away from daycare. We've tended to stay away from some of the untested new net lease use cases like Topgolf and trampoline parks things along those lines sticking to a certain more tested a paradigms.

Can you talk about just the you know, we start the the level of deal flow that you're seeing in comparison to say like the last few quarters just generally speaking. It's still very strong. I guess what I would say is that we had a flurry of activity last fall of signing contracts on large Acquisitions off a significant portion of those closed at the end of the year. Our transaction team that Jim leads is very focused on closing the remainder of those and the acquisition team is very busy working on new app positions to make sure the pipeline stays robust, but we're we're quite busy

And then just the last question your yields have been pretty consistent in the in the mid-60s. Like when you think about the the pipeline and things are looking at and the variety of Industries, you know, what what kind of starts to really move that that needle up or down the most that you're seeing out there. Like is it at least duration like if you went shorter-term, you don't really move out for vice versa or it's just credits still and what are the hot buttons you're saying, you know, honestly, I think it's discipline and we see a lot of transactions that get priced away from us and we're content as remain disciplined on our pricing and credit but obviously other factors like what kind of property tax in what the lease duration how good the credit is where interest rates stand at the moment how competitive you know, the competitive Dynamic of the transaction, you know, whether wage

Truly triple net et cetera et cetera, but the thing that we've been very pleased with in these parts.

Soldiers we feel like you were getting a differentiated outcome with reasonable cap rates very low rents and in good credit and actually the demographics of the partial transaction or far better than typical net lease.

Okay. Thanks a lot. Thanks.

And our next question will come from John moussaka with Lautenberg, please go ahead good morning. Good morning. So the occupancy take down slightly. It doesn't seem that was Crystal's given they look at their inclined to affirm the leases what what drove that you know, it's kind of small but they color there would be helpful. I think John is home. Mostly timing. I think we expect those buildings to be least back up here in the medium-term. So it was crystal just temporarily being kind of off the total it was not crystals. But again, we took those buildings are going to have tenants in and paying rent very shortly understood and then I think about one of the more recent acquisitions the building typically that was part of one of these Outlet deals, and we would that be a type of asset you'd feel comfortable buying if it didn't kind of come from an outlaw parcel out loud portfolio Transit.

Action and some of the Dynamics that kind of come with that. You know that the REO.

That you mentioned is a brand new build. It's a spectacular looking building and we're buying it at like sixty percent of the new building construction costs. So and it's a great credit. So that would be terrific one happened to be part of an outparcel transaction, but it's a that that would be a terrific asset to buy it a frankly. I wouldn't get anyone's hopes up that would be able to replicate that uh at scale. But that one in particular where we're very proud of makes sense. But to do kind of these bigger box retail you would need some of those similar Dynamics, correct?

Probably to be competitive on the pricing. That's it for me. Thank you very much.

This concludes our question-and-answer session. I would like to turn the conference back over to Bill Linehan for any closing remarks, please go ahead sir.

Thanks everyone for joining us on the call today. This is also the first time we've had International callers joining us. So thanks for everyone for the interest. We are able to see many many of them recently on a recent non-deal Roadshow. Again. Thanks for the time and dialogue during those meetings. And with that will conclude the call. Thank you, everyone.

The conference has now concluded thank you for attending today's presentation. You may now disconnect.