Is Now A Good Time To Buy Four Corners Property Trust?

When investors consider acquiring a stock, making an informed decision requires assessing numerous variables, including fundamentals, historical performance, dividend growth and recent events.

Investors also need to determine whether now is an opportune moment to acquire a particular stock. How do analysts perceive the company’s prospects? What was the outcome of the latest quarterly earnings report? Has the stock pulled back off highs to more reasonable levels?

Take a look at one real estate investment trust (REIT) that has been steadily growing its revenue and earnings while still paying a hefty dividend yield.  

Four Corners Property Trust Inc. FCPT is a Mill Valley, California-based diversified REIT, focused on owning net-leased restaurants, medical and dental services, automotive services and other retail properties in the U.S. Sun Belt. Four Corners has a market cap of $2.08 billion. The 52-week range is $20.51 to $27.60, and the average daily volume is roughly 1.3 million shares. 

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Four Corners was created in November 2015 with 418 restaurants spun out from Darden Restaurants Inc. DRI. Darden board member William Lenehan, who has a track record of success in real estate, was named the CEO. Over time, many Darden properties were sold off, but Olive Garden and LongHorn Steakhouse restaurants still make up about 47% of Four Corners' total rents. In 2023, Four Corners disposed of several Red Lobster properties that were not performing well.

Over the past seven years, Four Corners has steadily acquired more diversified properties. Its portfolio now includes 1,111 long-term leased properties with 148 brands across 47 states. Almost 20% of its properties are medical, retail and auto service tenants. It continues to acquire non-Darden restaurants, such as Chili's Grill & Bar, Buffalo Wild Wings, Cheddar's Scratch Kitchen, KFC, Taco Bell and Burger King.

At the end of 2023, Four Corners had an occupancy rate of 99.8% with a weighted annual lease term (WALT) of eight years. Its portfolio is mostly located in suburban, fast-growing areas. Less than 6.4% of its rental income matures before 2027. 

Four Corners uses a revolving credit and term loan agreement among several lenders. In March, it used the accordion feature of its revolving credit agreement to enter into a new loan term of $85 million, which matures in March 2027. This includes a one-time, 12-month extension that can be exercised before maturity.  

On Feb. 14, Four Corners gave its investors a nice Valentine's Day present with positive fourth-quarter operating results. Funds from operations (FFO) of $0.41 met analyst estimates and beat the fourth-quarter 2022 FFO of $0.40. Its revenue of $65.14 million topped estimates of $64.83 million and was 13.6% above fourth-quarter 2022 revenue of $57.36 million. First quarter 2024 operating results will be announced after the market closes on May 1. 

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Four Corners pays a quarterly dividend of $0.345, and the annualized $1.38 per share dividend now yields 6.06%. Since April 2019 there have been five increases, and the dividend has grown by 20.6% with no cuts or suspensions. 

The payout ratio of 83% is slightly higher than optimal, but FFO has increased by a penny over the past two quarters, suggesting that the payout ratio should continue to decline over future quarters. With a 6% dividend rate, the dividend will likely remain stable for a while longer. 

In March there was one change to the management structure. Chief Financial Officer Gerry Morgan announced his retirement effective May 3, 2024. Patrick Wernig, managing director of acquisitions, will succeed Morgan as CFO. Wernig has been with Four Corners since 2016. 

On April 11, Four Corners Property Trust acquired Banfield Pet Hospital in Iowa for $2.4 million. The facility is under a long-term net lease with approximately 10 years remaining on the term. As is typical of Four Corners' purchase philosophy, the transaction was priced at a 7.3% cap rate on rent on closing day and exclusive of closing costs.

Although rising interest rates have made acquisitions difficult for many REITs over the past two years, Four Corners has continued to be aggressive, yet selective, in its purchases. With its emphasis on diversification into recession-resistant tenants, Four Corners has successfully lowered the risk of rent defaults. It has specific criteria for acquisitions. For example, it will only consider 10- to 20-year lease terms on new leases and greater than five years for existing ones. It will only take tenants with national brands and strong credit operators. Cap rates from new acquisitions continue to be around 7%.  

With a pullback from $25.46 in January to a recent close of $22.74, investors should consider Four Corners Property Trust. The business model continues to succeed, and the dividend yield has reached enticing levels. Management's acquisition philosophy is viable. While Four Corners is primarily an income stock, the price to funds from operations ratio of 13.81 makes appreciation likely, especially if the Federal Reserve cuts interest rates. Of six analysts covering this REIT, two have Strong Buys, one has a Buy and three have Hold ratings.

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