Four Corners Property Trust, Inc. (FCPT) Q4 2018 Earnings Conference Call Transcript

FCPT earnings call for the period ending December 31, 2018.

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Motley Fool Transcribers
Feb 14, 2019 at 1:24PM
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Four Corners Property Trust, Inc.  (NYSE:FCPT)
Q4 2018 Earnings Conference Call
Feb. 14, 2019, 11:00 a.m. ET

Contents:

Prepared Remarks:

Operator

Good day, and welcome to the Four Corners Property Trust Fourth Quarter 2018 Earnings Conference Call and Webcast. All participants will be in a listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note this event is bring recorded.

I would now like to turn the conference call over to Mr. Gerry Morgan, Chief Financial Officer. Mr. Morgan, the floor is yours, sir.

Gerald R. Morgan -- Chief Financial Officer

Thank you, Mike. Joining me on the call today is Bill Lenehan. During the course of this call, we will make forward-looking statements, which are based on beliefs and assumptions made by us and information currently available to us. Our actual results will be affected by known and unknown factors 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 some potential risks, please refer to our SEC filings, which can be found on our website at www.fcpt.com. All the information presented on this call is current as of today, February 14, 2019. In addition, reconciliation to non-GAAP financial measures presented on this call, such as FFO and AFFO, can be found in the Company's supplemental report available on our website.

And with that, I'll turn the call over to Bill.

William H. Lenehan -- President, Chief Executive Officer and Director

Thank you, Gerry, and good morning. Thank you to everyone for joining us to discuss our fourth quarter results. I know this is a very busy morning release wise and we will be brief, as this is a very straightforward quarter. Our focus since our last call, continues to be on sourcing quality one-off and portfolio restaurant opportunities. In the fourth quarter, we purchased an additional 20 restaurants for $50.6 million, at an average cash cap rate of 6.8%. 17 of the 20 acquired restaurants are leased to corporate restaurant operators for attractive brands including Starbucks, Chili's, Taco Bell, and BJ's Brewhouse. Approximately half of the acquisitions are the result of our ongoing outparcel strategy with retail operators including Brookfield and Washington Prime.

In the quarter, we also took advantage of reverse inquiry interest in our properties by selling an Olive Garden in Augusta, Georgia at a cash cap rate of 4.8% to Darden who exercised their right of first refusal on the property. Year-to-date in 2019, we've acquired an additional 11 properties including 8 from Washington Prime for $20 million at an average cash cap rate of 6.7%. We remain very busy in the acquisition market and I would comment that in a fluctuating interest rate environment, we have seen cap rates basically stay flat. The existing portfolio has continued to perform well and the restaurant industry as a whole continues to report strong results. This included Darden, which was led by its Olive Garden, LongHorn brand, same-store sales growth of 3.5% and 2.9% respectively in the most recent quarter, closed in December.

Turning to the balance sheet. In the fourth quarter we accessed both the equity and debt capital markets to support our growth while ensuring that we continue to maintain a strong balance sheet with low leverage. Specifically, we issued $19 million of stock throughout the quarter via the ATM program, at an average price of $27.03. And, on December 20, we issued our second Private Note offering with a $100 million of proceeds, split between 8 and 10 year notes.

And with that, I'll turn it over to Gerry, to take you through our financial results. Gerry?

Gerald R. Morgan -- Chief Financial Officer

Thanks, Bill. We generated $30.8 million of 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 the end of the year is $125.6 million. And our -- excuse me, and our weighted average tenure annual cash rent escalator remains at approximately 1.5%. On an AFFO per share basis, which we believe best represents cash flow generated from the business, we reported 3% growth in quarter-over-quarter results and 5.4% growth for the full year of 2018 compared to 2017.

In the quarter, we reported $2.7 million of cash general and administrative expenses after excluding non-cash stock-based compensation, and we are providing guidance for 2019 of an annual cash G&A rate of approximately $11 million, again excluding non-cash stock-based comp and acquisition transaction costs. As a reminder, we also increased the dividend in the fourth quarter by 4.5% to an annual run rate of $1.15 per share.

Turning back to the balance sheet. As Bill mentioned, we ended the quarter well-capitalized to support 2019 investment activity with net debt to EBITDA of 4.6 times and over $90 million of available balance sheet cash and full availability on our $250 million revolver. In the quarter, we also amended our $400 million term loan facility to stagger the maturities from 2022 through 2024 and we were able to reduce the credit spread 10 basis points to 1.25% on the $250 million of the term loan that was extended. We remain committed to maintaining a conservative balance sheet and staying under our stated debt leverage goals of 5.5 times to 6 times net debt to EBITDAre.

With that, we'll turn it back over to Mike for Q&A.

Questions and Answers:

Operator

Okay. Thank you, sir. We will now begin the question-and-answer session. (Operator Instructions) And the first question we have will come from Collin Mings of Raymond James. Please go ahead.

Collin Mings -- Raymond James -- Analyst

Hey, good morning guys.

William H. Lenehan -- President, Chief Executive Officer and Director

Good morning, Collin.

Collin Mings -- Raymond James -- Analyst

As always, appreciate the efficiency of the prepared remarks. Just a couple of questions from me. To the extent, you can, can you maybe expand upon the package acquired from Brookfield during the quarter. And then just the runway there for potential additional deals from that relationship?

William H. Lenehan -- President, Chief Executive Officer and Director

Yes, Collin, this is actually a portfolio that we began working on quite some time ago with Rouse, and it requires some parcelization, and so it took quite a while to get it closed. We think there's more to do there. Brookfield obviously has a large real estate portfolio with a lot of outparcels, they're great team to work with. So we've been working on that and I just generally continue to find new outparcel opportunities to work on.

Collin Mings -- Raymond James -- Analyst

Okay. And should we think about just given, recognizing there are some unique characteristics with the Washington Prime deal, but just given the timeline involved in getting some of the parcelization process to the finish line, should we think about, again, maybe versus there being a big announcement of potential deals or a pipeline of deals, if you will, for it to be kind of announced as these deals actually get done and the parcelizations are complete. Is that a fair way to think about it from here on in?

William H. Lenehan -- President, Chief Executive Officer and Director

It's really facts and circumstance specific on how we make the announcements, but due to the extent that there was a really meaningful portfolio that it would help our investors in the street, model our company, I think we would follow the paradigm of Washington Prime, but it really is specific to the deal.

Collin Mings -- Raymond James -- Analyst

Okay, fair enough. And then in the prepared remarks, you highlighted cap rates stable overall. Just maybe if you can expand upon those comments any sort of shifts either, casual dining versus QSR or kind of a different -- across different concepts or credit profiles, anything else from the transaction market that you picked up on? One of your peers, earlier this week kind of alluded to the fact that, if anything, maybe cap rates have drifted a little bit down and there might be a little bit of downward pressure there, just kind of your take on the transaction market?

William H. Lenehan -- President, Chief Executive Officer and Director

I think we've seen rates move around quite a bit and cap rates quite a bit less so, is all I would summarize it. Seems to be some downward pressure on cap rates for deals with very long lease term. And I think other than that it's been surprisingly steady despite a very volatile rate environment, very volatile stock market and some pretty significant moves in the underlying stock prices of our peers. Overall, it's been pretty consistent on a cap rate basis.

Collin Mings -- Raymond James -- Analyst

All right. I will turn it over. Thank you.

William H. Lenehan -- President, Chief Executive Officer and Director

Thanks, Collin.

Operator

And next we will have Mitch Germain of JMP Securities.

Mitch Germain -- JMP Securities -- Analyst

Bill, I know in your investor presentation, you have that strike zone. And I'm curious if the strike zone is getting a little bit wider or narrower in terms of kind of your underwriting and what you're seeing out there is a population of assets for sale.

William H. Lenehan -- President, Chief Executive Officer and Director

I don't think there's been a whole lot of change. We've had a cost to capital allows us to raise equity and deploy it accretively. Consistently now for quite some time our stock price is strong and that allows us to raise equity and by safer assets and maintain a similar yield and spread to our underlying cost of capital. So it's been very consistent is how I would describe it. And I would just further say that that mental model is very helpful in times like December where stock prices were moving around quite a bit.

Mitch Germain -- JMP Securities -- Analyst

Great, that's helpful. And I know that one of the thesis was obviously unlocking value through retail landlords obviously through restaurant companies sale leaseback. It seems like franchisee, the larger deals where maybe you could use OP units or something have failed to come about or maybe they have and I just haven't recognized it to the extent that I expected. Is it maybe just an education process with many of them in terms of state planning and other issues that might be a reluctance for them to transact?

William H. Lenehan -- President, Chief Executive Officer and Director

I think we've made pretty good progress with the large franchisees and continue to do so. On the OP unit side, I think the thing that typically is the impediment is there aren't a lot of individuals feel comfortable owning $10 million, $20 million, $30 million of a single stock where they're not part of management. But we have done OP unit deals and we have conversations with franchisees on a weekly basis about them. So I think it's just we are making progress on the large franchisees and we will do additional OP unit deals. It's just a matter of time.

Mitch Germain -- JMP Securities -- Analyst

Thank you.

Operator

(Operator Instructions) Next, we have John Massocca of Ladenburg Thalmann. Please go ahead.

John Massocca -- Ladenburg Thalmann -- Analyst

Good morning.

William H. Lenehan -- President, Chief Executive Officer and Director

Good morning, John.

John Massocca -- Ladenburg Thalmann -- Analyst

Bill, if we think about your portfolio as kind of a quality bell curve, where was the Augusta property that you sold on that curve, your best destination?

William H. Lenehan -- President, Chief Executive Officer and Director

It was adjacent to the Augusta National Golf Course.

John Massocca -- Ladenburg Thalmann -- Analyst

I'm thinking of the good end of the curve then probably.

William H. Lenehan -- President, Chief Executive Officer and Director

Yes, I mean, the values of the -- the strategic value of that asset was its adjacency to the golf course.

John Massocca -- Ladenburg Thalmann -- Analyst

Okay. And then how much of the original Darden portfolio is subject to ROFRs? And how is the kind of cap rates set in the way that ROFR, I mean, is that something they negotiate with you to kind of prevent you selling to a third party or is there a set level that they kind of have as -- well if they're going to do this, they have to do it at a certain cap rate?

William H. Lenehan -- President, Chief Executive Officer and Director

Right. Well, they -- the Darden portfolio has ROFRs which is very typical frankly with large investment-grade tenants. We received a offer on the course -- from the golf course -- on the property from the golf course, we brought that to Darden, as we have every other asset that we sold. And in this case, unlike the seven, I believe previously, they felt it was advisable for them to purchase the property.

John Massocca -- Ladenburg Thalmann -- Analyst

That makes sense. And then for kind of like detail, the provision for impairment. What drove that the one, it's kind of defined out in the FFO adjustment?

William H. Lenehan -- President, Chief Executive Officer and Director

That was the one property that we purchased to date where the tenant has left that's the Dairy Queen in Tulsa, Oklahoma. We've had some progress in trying to retenant it with another Dairy Queen franchisee but out of the abundance of caution, we decided to write it down.

John Massocca -- Ladenburg Thalmann -- Analyst

Make sense. That's it from me. Thank you very much.

William H. Lenehan -- President, Chief Executive Officer and Director

Thanks.

Operator

I'm showing no further questions at this time. We'll go ahead and conclude our question-and-answer session. I would now like to turn the conference call back over to management for any closing remarks. Gentlemen?

William H. Lenehan -- President, Chief Executive Officer and Director

Thank you, Mike. We'll -- we promised a brief call, it's about 15 minutes in. With that, I want to thank all our shareholders and everyone who joined the call today. If you have any questions, we're here and at the ready. Thank you.

Operator

And we thank you, sir, also for your time today and the rest of the management team. Again, the conference call has now concluded. At this time you may disconnect your lines. Thank you, everyone. Take care. And have a great day.

Duration: 15 minutes

Call participants:

Gerald R. Morgan -- Chief Financial Officer

William H. Lenehan -- President, Chief Executive Officer and Director

Collin Mings -- Raymond James -- Analyst

Mitch Germain -- JMP Securities -- Analyst

John Massocca -- Ladenburg Thalmann -- Analyst

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