Q4 2020 Four Corners Property Trust Inc Earnings Call
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Good day and welcome to the F. C. P. P fourth quarter 'twenty 'twenty financial results Conference call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing Star then zero after today's presentation there'll be an opportunity.
To ask questions to ask a question you May Press Star then one on I touched on phone to withdraw. Your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Gerry Morgan. Please go ahead.
Thank you during the course of this call we will make forward looking statements, which are based on beliefs and assumptions made by us our actual results will be affected by known and unknown factors, including uncertainty related to the remaining scope severity and duration of the COVID-19 pandemic that are beyond our control or ability to predict our assumptions are not a guarantee of future performance.
And some will prove to be incorrect for a more detailed description of potential risks. Please refer to our SEC filings, which can be found at Hep C. P. P. Dot com all of the information presented on this call is current as of today February 18th 2021. In addition reconciliation to non-GAAP financial measures presented on this call such.
That though and if that book can be found on the company's supplemental report also available on our website with that I'll turn the call over to Bill.
Thank you Gerry good morning.
Thank you to everyone for joining us to discuss our fourth quarter results, which were very pleased with in terms of continued strong collections high acquisition volumes meaningful equity capital raised in the continued growth on the F. C. P T T.
While this pandemic period has been one of the most challenging operating periods from the restaurant industry. Overall it is important to distinguish between different restaurant types and specifically the kind of properties at four corners homes.
Our buildings are typically suburban or not located in central business districts of large cities, they're not one offs concepts, but instead are part of large branded companies, who are who are often publicly traded at enterprises vs restaurant operators have true.
From a resilient and adjusting their business models are casual dining tenants remain on rebound right.
But our true it's our tenants are often reported results above pre COVID-19 levels, we're watching with interest the stimulus discussions in Washington that could result in a significant federal support.
Restaurant industry as well as the end consumer.
As we've seen with her share of group Darden and other casual dining operators EBITDA margins have improved because of simplified menus lower levels of dining room staffing higher profitability four to go businesses investing in technology and our significant focus on overhead efficiency.
Our collections at quarter end.
We had collected 99.7 are scheduled twenty-twenty rents that is an impressive accomplishment for our tenant operators and for our team who worked hard on hard engage with our tenants. This year. We continued to see strong collections in this range for 'twenty 'twenty, one to date, where you're working with tenants and three locations representing less than zero point too.
Per cent of portfolio rents to either modify their lease or terminate and then re leased the building.
Otherwise, we're not seeing rent deferral requests from our tenants instead of spending time with them on potential expansion opportunities in connection with our joint venture.
Our apparel subsidiary in San Antonio, which operates six long steakhouses continues to also be impacted by Covid restrictions.
Carol provides a wonderful window in real time on understanding what our tenants are doing to adapt the Curt corrode team's hard work resulted in a return to profitability in the third quarter with positive EBITDA of 110000, and an increase in profitability in the fourth quarter to positive EBITDA of 244000 I think.
So Carol Dilts enter team run these restaurants shown this year, how skilled and committed they are.
We broke ground on October to construct our seventh curl on one restaurant in the live Oaks area, San Antonio, which will open in early in the second quarter and is located next to a new olive garden property that we acquired in July.
We reported fourth quarter amphibole per share of 37 assets, which represents a year over year increase.
We are set up well for growth in 'twenty and 'twenty, one as much as $100 million per acquisitions in the quarter occurred towards the end and we de levered the balance sheet with $88 million an equity raise via the ATM.
On an average price of 20 866 per share.
Turning to acquisitions in the quarter, we acquired 40 properties for a combined purchase price of $103 million net initial weighted average cash yield of $6 four per cent.
Looking at 2020 in total we acquired on made investments into 101 properties totaling $233 million, even with the pause in acquisitions from most of the second quarter approximately 50 per cent of these properties were sourced out of the out parcel strategy and therefore, many of the properties were setup as ground leases with low rats.
As evidenced of the quality of the 'twenty 'twenty acquisitions 71 per cent of the leases are with the brand's corporate operator or guaranteed by the corporate entity and 45 per cent of the leases are ground leases, where after CPT owns the land and the tenant constructed the building.
Now, let me update you on the Bacon venture with Rupert Adler that we announced in October.
We are very active in making venture we have formally underwritten over a thousand properties held conversations with thousands of tenants and have issued a number of letters of intent. The thesis that there would be obviously well located properties that had formerly been weak brands is confirmed and so as tenant interest.
On brands and growth mode.
That said pricing remains difficult true, we're turning over a lot of rocks, but believe pricing will improve overtime.
As a reminder, we will announce these transactions in our quarterly results rather than the day. They close as we do it on their S. U P. T acquisitions, we're learning a lot about which finds good locations on our tenants is.
Specific to each tenant and Libertad one has been a great partner support they bring a lot to the table just a quick comment on the acquisition environment.
Or at least building, it's very competitive, especially for choice. Our properties. We are in a low interest rate environment and the financing markets are aggressive high leverage buyers are pushing on pricing, we intend to remain disciplined and will continue to focus on making quality acquisitions and our pipeline is strong.
In summary, we posted a $99 six per cent rent collections for Q4 that I believe are the highest in the net lease sector, and which we hope and expect to continue to go forward with.
Higher 48 properties in the quarter and the team is excited to be building portfolio and making progress on the venture with Rupert Adler Jerry.
Thanks, Bill we generated $40 1 million of cash rental income in the fourth quarter. After excluding $1 6 million of straight line. Another non cash rent adjustments as Bill mentioned, we reported 99.7 per cent of collections for 2020 as of year at one caveat to this collection result is that it includes one.
$6 million of second quarter rent and they collected rental revenue total, which we abated and returned four favorable long term lease modifications and other extensions, including the abated rent in rental revenue totals as required by GAAP revenue accounting, but to remind everyone. We did not include these amounts that are reported.
Therefore, excluding the abated rent our collection results for 2020 or 98, 7%. So still very high with these results there were no material change to our collectability or credit reserves on the quarter and we also had no balance sheet impairments on the quarter on a run rate basis. The current annual cash base rent for leases on play.
As of December 31, 2020 is 156.0 million and our weighted average 10 year annual cash rent escalator is 1.44% as a reminder, the rent on all of the original Darden leases increased by one 5% on November 9th this quarter.
You will also see the we've estimated the rent coverage for the Darden leases in our portfolio at four three times four their quarter ending November 29 2020.
And even though their sales were down over 20% year over year for this quarter.
This estimate is calculated by using darden's reported sales on our portfolio to us and Darden's brand average margins for the same time period to estimate the EBITDA. This result, evidences the low rent and room, we have on rent collection in our portfolio. We have excluded coverage estimates for the non darden portion of the portfolio since much of the financial reporting.
Still includes time periods prior to COVID-19, and May not be representative of current tenant operations. It's our expectation that tenant operations will normalize this year and we will see rent coverage returned to its historical levels over time.
Our fourth quarter after thought per share results of 37 cents represented a one share one cent per share increase in year over year results.
70 per cent of the $103 4 million of acquisitions in the quarter were closed in December much of that toward the end of December and all of these properties will contribute T. A S that bolt on Q1 from a full quarter.
We ended the quarter with 10 million balance on our revolver on $240 million of availability and $11 million of cash reserves are.
Our leverage metrics improved in the quarter, given the equity capital raising with a fixed charge coverage of five one times in the fourth quarter and net debt to EBITDA at five two times I would estimate we're closer to a 5.0 times leverage at the year end run rate EBITDA. This sets us up well from a capitalization standpoint going in.
'twenty 'twenty, one and to remind everyone. We are committed to maintaining net debt to leverage targets below five five to six times. Finally, we paid an increased dividend for the quarter of 31.75 cents or $1.27 on an annualized basis, which represented a 4% increase over the prior quarter.
And with that I'll turn it back over to Bill for closing comments before Q&A.
Thanks, Jerry in conclusion, we are very happy with the four fourth quarter results and for the year on total 'twenty 'twenty. One is off to a very good start and we're working extremely hard as always we're available to answer any questions on the quarter or the portfolio. So please reach out with that we will turn it back over to the operator Q&A.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone, if you're using a speakerphone. Please pick up your handset before pressing the keys. If at any time. Your question has been addressed and you would like to withdraw. Your question. Please press Star then two at this time.
We will pause momentarily to assemble our roster.
The first question comes from Nate Crossett with Baird. Please go ahead.
Hey, good morning, guys good morning.
Was wondering if you can just give a little bit more color on how the pipeline looks right now and maybe you can just remind us how much overlap between.
Tien Tsin, Brookfield and could there be more on these kind of out parcel agreements that are initiated this year.
Sure they're significant.
On properties with with Brookfield with started talks with Washington Prime.
Etcetera, but we also have a robust pipeline with other with one off deals on other portfolios.
Significant mix of of non restaurant as well, so I'm, making a ton of progress we don't give specific pipeline numbers, but you know.
As I said, we've been quite busy and are making a lot of progress and it's very granular actually.
At this point lots of individual transactions, so that gives us some comfort that we're not you know.
Resting on a single transaction.
Okay, but I guess my question is how much is left on that agreement.
Now from past eight but yeah, its about its about $45 million as of the end of the year.
Okay.
So deals that we've announced but not yet closed.
Okay Cool that's helpful. Thank you so on the JV.
Things are progressing quite quickly I was just curious.
How you expect that the amount that was initially disclosed like when could we expect that that would get them played versus kind of your initial expectations. I think it's progressing quicker than you initially thought or.
Yeah, I think we're making a ton of progress as I said, we put out were really brings a lot to the table and.
Really good progress lots of properties to look at it really as a matter of pricing a lot of sellers are holding on to pricing that would only be appropriate if you were user.
So we think that will change over time, but I'm very excited with how it's going on I think we're going to end up finding a lot of good properties and again the conversations with tenants we've been having have been very productive so oh no no.
A itself that was made the whole effort worthwhile.
Okay I'll leave it there thank you.
Thanks Nate.
The next question comes from Sheila Mcgrath with Evercore ISI. Please go ahead.
Hi, Yes, good morning Bill.
Bill I was wondering if you could give us a little more detail on the ground lease.
Transactions it.
It appears that 40 out of 100 properties were ground leases are those all my them all out parcels.
Yeah sure Great question on I think I think we said about 45 per cent for ground leases. Many of the other that arent growing says have very low rents of share a lot of the attributes to ground lease the shopping center and Malo persons on a very often ground leases and you know it's a lot of work for a small amount of dollars.
But very low rents from very sticky tenants and so when you have a year like we've just had a day they tend to pay now which is a huge benefit and that's one of the reasons or collections or something higher.
Uh huh.
Two to focus on that strategy, we bought a lot of ground leases over the last handful of years and I think overall I'm very happy with that strategy over the long term and we've even seen some that have had a lease maturities come up having rents roll.
On up to higher market levels.
And because you have to do the extra work on them often like outlining them the parcel or whatever the terminology is on.
Do you do you limit the competition because it requires a lot more effort on your part.
Yes, Indeed and in fact, we've now had a handful of deals that other public competitors have signed.
Signed up to do they've they've dropped out after they realized how much work is to complete these deals and we've taken them on so again lots of work credit to Jim Brown, our chief transaction officer for being Super organized and having the knowledge to do this a lot of work upfront and there's a lot of value over time.
And last one are the cap rates on.
On those transactions similar to the average that you reported for all acquisition.
Yes.
Okay. Thank you.
Thanks, Phil.
The next question comes from Anthony Pallone with J P. Morgan. Please go ahead.
Hi, Thanks, I guess just following on on Sheila's question I guess as you think about doing some of these transactions with small operators and other shopping center owners just like what's their continued motivation to do these deals I mean, your yields seem to be pretty strong credit seems to be pretty strong.
How you know how are they looking at this.
I think you know they're attracted by the proceeds and the relative valuation of out parcels endorses, our malls, which your malls used to have very high value is now they don't Oh parcel on it.
As accretive to Nevada valuation, so and again proceeds to retire debt.
To have cash to fund development.
And surcharges case, it's the.
Having creating cash to pay for very accretive.
Redevelopment activities out there per se.
Okay, and as you're looking at the pipeline outside of the deals that that you know or.
[noise] teed up and were put in place previously.
Do you think you'll be able to keep yields in the same range you've been running them.
I think it's a great question it wouldn't surprise me if yields come down slightly.
Slightly but I would also just point out our cost of debt has declined very very significantly over time as well. So the relative yields we would expect to stay relatively flat.
Okay and then.
On the tenant expansion you've talked about that a bit can you talk about just what.
What your conversations are like on that front, where the real estate solution comes into play and just.
How quickly that that's going to play a role on things.
Yeah, I think there's a handful of different.
Roots there one is a simple where rents were super Super low one 2% rent to sales.
What are your Inc.
Increase the rents and gave them a proceeds but still kept rents between 3% to 4% rent sales just super safe.
And then in other cases, it was remodel capital and I think you know over a long period of time I think we'll see a lot of casual dining restaurants tried to reconfigure their space to accommodate to go percentages that were single digits that now post COVID-19 might be 25, 30 per cent and accommodate our brands.
Within within a brand for example.
It's just wings concept at Brinker has rolled out I think that those changes to the business model on how the boxes you used may manifest in.
Actual changes to the box and because of the rents are so low and we have very good credit tenants, we can help finance that.
Typically with a typically with the lease extension as part of the bargain.
Okay, and then just last detail question the joint venture.
Is your $20 million commitment was that all funded already or do you put that in as you go just cash unless you go.
Okay.
Got it thank you.
Yep.
Thanks again.
The next question comes from Rob Stevenson with Janney. Please go ahead.
Hey, good morning, guys.
Right.
The 98, 7% collect excluding the abated rent what types of tenants are those is there any commonality there by operator or concept is it you know.
What are what's the what's the.
Already there.
Well start with above 68 per cent being Darden and then a good chunk of them being brinker.
So that those two get you approaching seven.
Excuse me personally 80 per cent.
But but basically everyone's paid that.
A few exceptions.
Oh, you know really one off there's not there's not a.
Commonality one was brand.
At had credit issues.
Closed down an entire region, so on multi state region.
So we had a really good building with low rents that will be able to release without much issue I don't I don't imagine.
I think close to on the entire range about the country. So one of our property was caught up on that.
And stuff like that.
Handful of buildings on it.
Okay.
Alright, perfect and then from of you guys are basically essentially fully occupied.
The assets or assets that you know the couple of assets that you have that are not occupied at this at this moment how is the releasing of those going up.
Are they more likely at this point to be sales you still think that keep them and re tenant them help us you know.
Give us some color there if you wouldn't mind.
Sure well, we had one empty building that we already sold we actually sold it for a gain on that.
So it was sort of more advantageous for us to sell it and book the game and to go through the effort releasing it we have one building that we will definitely release, we're in advanced discussions with one of our existing large tenants to take the building.
I think it's situational, but it's it's literally a building or two and we're making good progress and in the case.
Okay, and then last one from me Jerry when you guys raised the dividend.
How close to minimum repay out where you before that increase.
Not close where we're where we're very comfortably over the minimum.
Okay, even alright, even without the increase.
Okay. Thanks, guys appreciate it.
From.
The next question comes from John Russo with Ladenburg Thalmann. Please go ahead.
Good morning.
Good morning.
Building on some of the earlier conversations around outlets I mean, what's kind of the expectation maybe from new outlet transaction.
Next year, I mean, how deep is that potential transaction.
Transaction base.
Given you're probably not turning over a lot of new leads on that front and maybe what gets other landlords kind of over the finish line.
Okay.
It's a great question I mean, it's not infinite obviously, but I think what we've found is every time, we thought we were done with our partial strategy, we found another counterparty or additional properties.
With our current Counterparties seemed surcharges from examples active in leasing.
We're doing our best to be their go to as they as they.
At least up on our properties. So I think we still have quite quite a ways to go.
In this and where I had to find this opportunity in the early days was it was way too narrow.
And you know as small companies engaged in transactions.
You know M&A are there some restructuring those type of things tend to create a personal deals.
So we will continue to focus on it.
You know I think we've really developed a core competency to be able to get.
Get these buildings to be in a situation, where we can buy them.
And we've proven out the strategy. So I think it's something around $300 million that we've either done or have under contract to do so it's meaningful for the company.
Okay, and then maybe on the other side of the kind of investment platform, there's been some conversation around M&A.
M&A activity on the <unk> side in terms of operators yeah on.
That might create some sale leaseback opportunity that that's something you think <unk> can play in or do you think pricing maybe would be too rich so even on larger transactions that come out of that type of M&A.
Yeah, the big one obviously flow through 'twenty 'twenty, one will be the convenient store transactions on.
Driven by M&A and so.
When you look at everything we see all the deals it really comes down to pricing and you know we have some competitors, who you know private competitors, who will use you know 80 per cent financing or.
Or worse structure.
Structured ABS financing.
And I think the values that they play out or are not realistic for us, but that's okay. There's plenty of four.
For us to work on them.
You know when when people need surety of close that's where we really shine.
Okay, well it sounds like pricing pressure is kind of at both the granular level for individual assets and even up to some of the bigger portfolios.
That's correct.
Yes.
That's it for me. Thank you very much and on the investment grade side more generally.
Okay.
This is a reminder, if you have a question. Please press star then one to be joined into the queue.
The next question comes from Peter Heckmann with Bank. Please go ahead.
Hey, guys. There are multiple ports out there that's taken shake has hired restructuring advisors and looks like theyre, taking on some water. If they were to file and object stores would you look to contribute those vacant properties to the JV.
Yes.
Okay and then the next one I have is do you guys expect to continue funding acquisitions at a higher percentage of new equity going forward in 'twenty and 'twenty, one as well.
So it's a great question, we try to be price sensitive when we raise equity and so.
So it really depends on our stock price, which I can't predict.
But we we had some interest in our stock price in December.
At prices that we thought it made some sense and so while we were active.
Then very price dependent and we modulate given our pipeline again on.
Always trying to be conservative from a balance sheet.
Got it that's it from me thanks, guys yeah. Thanks.
This concludes our Q&A session I would like to turn the conference back over to Phil.
For closing remarks.
Thanks, everyone.
2020 was a difficult year our team really responded on thank you to our board and to our shareholders. If anyone has any questions. Please feel free to reach out. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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