Four Corners Property Trust, Inc. Annual Report: A Comprehensive Investor Overview

Four Corners Property Trust (FCPT) is a self-managed real estate investment trust (REIT) that specializes in acquiring, owning, and leasing single-tenant, net-lease properties. As a landlord in this model, FCPT's tenants typically cover property expenses like taxes, insurance, and maintenance, providing FCPT with stable, long-term rental income.

Fiscal Year 2023 Performance Highlights:

FCPT delivered robust results in 2023, showcasing consistent growth and strong operational efficiency:

• Total Revenue: Revenue grew 8.5% to $245.3 million, driven by strategic acquisitions and built-in rent increases in existing leases.
• Net Income: Net income increased 10.2% to $128.7 million, or $1.55 per diluted share.
• Funds From Operations (FFO): A key measure of REIT profitability, FFO rose 7.8% to $1.68 per diluted share, reflecting the company's core earnings power.
• Adjusted FFO (AFFO): AFFO, which indicates cash flow available for distributions, grew 7.5% to $1.72 per diluted share.
• Dividends: FCPT increased its annual dividend by 4.5% to $1.38 per share, demonstrating its commitment to shareholder returns. The dividend yield was approximately 5.5% at year-end.
• Occupancy Rate: The company maintained an exceptionally high occupancy rate of 99.6%, underscoring the quality of its properties and tenant base.

Diversified Property Portfolio:

FCPT strategically diversifies its portfolio across various property types and geographies, reducing reliance on any single sector or region. As of year-end, the portfolio included 1,150 properties across 47 states, totaling approximately 14.5 million square feet.

The portfolio's diversification by Annualized Base Rent (ABR) – the total annual rent due from tenants – includes:

• Casual Dining Restaurants: 45% (featuring Darden brands like Olive Garden and LongHorn Steakhouse)
• Quick Service Restaurants: 25%
• Medical Retail: 15% (e.g., urgent care centers, specialized clinics)
• Auto Service: 10% (e.g., maintenance and repair centers)
• Other Retail/Multi-Tenant: 5%

While FCPT's properties span 47 states, its highest ABR concentrations are in Texas (11%), Florida (9%), and California (7%), reflecting strategic investments in high-growth markets.

Strategic Growth and Capital Deployment:

FCPT actively pursued growth through acquisitions, investing $210 million in 55 new properties during the year. These acquisitions primarily expanded its presence in the medical retail and auto service sectors, further diversifying its income streams. The company also sold 10 non-core properties for $15 million, optimizing its portfolio.

To fund these investments and for general corporate purposes, FCPT utilized its "At-The-Market" (ATM) equity offering program, raising approximately $75 million in net proceeds. This program allows the company to opportunistically raise capital directly from the market.

Management's Discussion and Analysis Highlights:

Management attributes FCPT's strong financial performance to the successful execution of its acquisition strategy and built-in rent increases within its existing lease portfolio. The company's strategic focus on acquiring properties in resilient sectors like quick-service restaurants, medical retail, and auto service has proven effective in maintaining high occupancy and stable cash flows.

Disciplined capital allocation, including the use of the ATM program, has enabled growth that enhances shareholder value while maintaining a strong balance sheet. Management continuously monitors economic conditions and tenant health to proactively manage portfolio risks and optimize asset performance.

Robust Financial Position and Liquidity:

FCPT maintains a strong balance sheet and a disciplined approach to debt management:

• Total Debt: Its total debt stands at $1.85 billion, primarily consisting of senior notes and term loans.
• Weighted Average Interest Rate: The company's debt carries a weighted average interest rate of 4.1%, with an average maturity of 6.5 years.
• Leverage: FCPT's Net Debt to Adjusted EBITDA (a measure of debt relative to earnings) was 6.2x, falling within the company's target range.
• Liquidity: FCPT held $35 million in cash and cash equivalents and had $350 million available on its $400 million revolving credit facility. This provides ample flexibility for future investments and operations.
• Interest Rate Management: FCPT uses interest rate swaps to protect against potential increases in variable interest rates, ensuring more predictable borrowing costs.

Competitive Position:

FCPT operates in a highly competitive real estate market, particularly within the net-lease sector. Its competitive advantages stem from several factors:

• Niche Focus: Specializing in single-tenant, net-lease properties – especially those with strong tenants and essential services (e.g., restaurants, medical retail, auto service) – allows for targeted acquisitions and efficient property management.
• Strong Tenant Relationships: Long-standing relationships with established national brands, such as Darden Restaurants, provide a stable revenue base and opportunities for repeat business.
• Acquisition Expertise: FCPT has a proven track record of identifying and executing acquisitions that increase shareholder value, leveraging a robust pipeline and efficient evaluation processes.
• Capital Access: Access to diverse capital sources, including its revolving credit facility and ATM equity program, provides flexibility to fund growth and manage liquidity effectively.
• Operational Efficiency: As a self-managed REIT, FCPT directly oversees its portfolio and operations, contributing to its high occupancy rates and effective cost management.

Key Risks for Investors:

While FCPT's diversified portfolio helps mitigate some risks, investors should be aware of specific considerations:

• Tenant Concentration: FCPT generates approximately 22% of its ABR from properties leased to Darden Restaurants, Inc. (primarily Olive Garden). While Darden is a strong tenant, any significant negative change in their business performance could impact FCPT's rental income.
• Interest Rate Fluctuations: As a REIT, FCPT's valuation and cost of capital can be sensitive to changes in interest rates. While hedging strategies are in place, sustained increases in rates could affect profitability and the ability to acquire new properties.
• Economic Downturns: A broad economic recession could impact tenant sales, potentially leading to reduced rent payments, lease defaults, or slower growth in rental income.
• Real Estate Market Conditions: Local and national real estate market dynamics can cause property values and rental rates to fluctuate.

Outlook:

FCPT is well-positioned for continued growth, leveraging its strong balance sheet, diversified portfolio, and proven acquisition strategy. The company plans to continue targeting single-tenant, net-lease properties in resilient sectors, aiming to enhance shareholder value through consistent dividend growth and strategic portfolio expansion.