Fill Your Belly And Your Wallet? This High-Yield REIT Just Picked Up More Of A Popular Restaurant Chain

If you’ve ever eaten at Olive Garden, Outback Steakhouse or Chili’s, you may have been benefitting Four Corners Property Trust (FCPT), a real estate investment trust (REIT) that specializes in owning and leasing both retail and restaurant properties. The numbers for restaurant growth are impressive. While inflation has weighed on consumers, one study showed that Americans eat out at least four times a week and spend over $3,000 on dining out each year.

FCPT recently acquired 19 Bloomin' Brands BLMN restaurant properties for $66.4 million. The 19 properties are located across 10 states and are under long-term leases. The transaction makes Bloomin' Brands FCPT's third largest tenant, responsible for 3.3% of its cash rent. "We're particularly glad to see another large public company operator rise to our #3 tenant behind Darden and Brinker as this transaction furthers our diversification efforts while maintaining the strength of our portfolio," said Bill Lenehan, FCPT's CEO. 

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The deal comes as FCPT is aggressively targeting new acquisitions. FCPT paid down its revolver balance while also funding $71 million in incremental acquisitions with equity. The company raised approximately $156 million in equity via its ATM platform year to date. It has purchased $132 million in properties so far this year with a 7.2% cap rate. The cap rate measures how much of the original capital invested to buy a property will be returned to the owner each year. The higher the cap rate, the more cash flows through to the owner on a yearly basis after expenses in relation to the purchase price of the property. While there’s no universal rule for a good cap rate because it often depends on location and other factors, between 5 and 10% is a healthy cap rate. 

FCPT has a current dividend yield of 4.93% and an annual payout of $1.38. Since its inception, its dividend raises have been modest but consistent, and it did not cut or pause its dividend during the pandemic. Analysts rate it a consensus Outperform and the stock is up approximately 9% this year. 

On the company's second-quarter conference call, Lenehan said that more acquisitions could be coming: "We will continue to look to add to the pipeline in a meaningful way in the second half of the year while maintaining our quality standards."

Risk For FCPT’s Future Growth

One concern that investors may have with FCPT is high tenant concentration. The Bloomin' Brands deal reduces Darden Restaurants DRI to below 50% of base rent. Darden's Olive Garden restaurants alone were responsible for 74% of FCPT's base rent at inception; that's down to 35% now, but that is still a high number. FCPT was originally spun out of Darden in 2015. The fact that it has built stronger concentrations with both Bloomin' Brands and Brinker International EAT, the company behind Chili's, is a positive sign for the future health of the REIT.

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Because it is tied to such popular brands, if one of them falters, it could be bad for the company. A recent example is the Red Lobster bankruptcy. FCPT has leases with 18 Red Lobster restaurants. The company expects all of these locations to remain open and generate rent, but it highlights the potential exposure that FCPT has to major brands. That doesn't make it different from other retail REITs but it is something to factor in. 

Another looming concern for any retail or restaurant REIT is consumer spending. FCPT is primarily a restaurant REIT, with only 21% of non-restaurant exposure, which includes auto services and medical retail. July data from The National Restaurant Association showed total sales of $94.7 billion, up 0.3%. Growth has been modest over the last several months, reflecting general economic uncertainty. 

Overall, however, FCPT’s fundamentals are strong. The power of its national brands is a positive, and its ongoing diversification is a point of strength. Investors will want to keep an eye on the national restaurant brands that drive FCPT's rents. The pace of acquisitions should increase rents and boost FCPT's bottom line and, hopefully, its dividend. 

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