The restaurant industry isn’t for the faint of heart. Competition can be fierce, and margins are often razor-thin as rising food and staffing costs make it tough for many restaurants to consistently turn a profit. Because of that, most restaurant operators don’t own their real estate since they could better use that capital in their operations.
Instead, they typically lease it from a third party, like a real estate investment trust (REIT). One REIT focused on the restaurant sector is Four Corners Property Trust (NYSE: FCPT). Here's a closer look at the company.
Four Corners Property Trust profile
Four Corners is a retail REIT focused on the restaurant industry. At the end of 2021's first quarter, the REIT owned 833 properties with more than 5.4 million square feet of space across 46 states. The vast majority of its portfolio -- 94% of its annual base rent (ABR) -- are properties net leased to restaurants. The remaining 6% (72 leases) are properties net leased to retailers resistant to e-commerce and recessionary pressures, mainly auto service and medical retail.
Overall, Four Corners Property has 843 leases with 95 brands. Its largest tenants by brand:
- Olive Garden: 309 units contribute 47% of its ABR.
- Longhorn Steakhouse: 115 units supply 13% of its ABR.
- Chili's: 71 units contribute 9% of its ABR.
- Other Darden (NYSE: DRI) restaurants: 14 units supplying 3% of ABR.
- Other restaurants: 262 units leased to 44 brands contribute 22% of its ABR.
- Nonrestaurant retail: 72 units leased to 44 brands supply 6% of its ABR.
Overall, the company gets roughly 63% of its ABR from Darden-branded restaurants. That company formed Four Corners in 2015 by spinning off its real estate into the newly created REIT. Meanwhile, it gets another 9% from Brinker International brand Chili's. While those are nationally recognized, large-scale, publicly-traded restaurant operators, Four Corners has significant exposure to these two tenants.
The company's remaining restaurant tenants consist primarily of nationally recognized quick service (QSR) and casual dining restaurant concepts. Its two largest tenants outside of Darden and Brinker concepts are privately held Red Lobster (a former Darden brand) at 21 properties and 3% of its ABR and Restaurant Brands International’s Burger King at 25 properties and 2.1% of its ABR.
Four Corners Property Trust news
The pandemic had a notable impact on the restaurant industry in 2020. However, it affected certain restaurants more than others. QSRs and fast-casual concepts quickly adapted to the new normal by offering curbside pickup and delivery options to improve sales since many restaurants could not have full dine-in capacity for most of the year.
Because these restaurant concepts pivoted, they were able to generate enough sales to meet their financial obligations, including paying rent. The restaurant industry also benefited from government programs aimed at helping them pay rent and other expenses during the pandemic. Because of that and Four Corners' focus on owning properties leased to strong national brands, the REIT collected 99.7% of the contractual base rent it billed in 2020.
Four Corners also had a successful year in expanding its portfolio in 2020. The REIT spent $223 million to acquire 101 properties, 32% of which were not restaurants, as it continued to diversify its portfolio.
The company purchased a variety of properties from many sellers. However, of note, Four Corners has become the partner of choice for retail REITs seeking to monetize outparcels in their retail centers. It launched its outparcel purchase program in 2019, buying properties from the following sellers:
- Seritage Growth Properties: Purchased 22 properties in phases for $70 million through the end of 2020.
- Brookfield Properties: Acquired 17 properties overall for $29 million through the end of 2020.
- Washington Prime Group: Bought a total of 51 properties for $82.6 million through the end of 2020.
The REIT also unveiled a new partnership in 2020, this time to help it finance property acquisitions. It formed a strategic joint venture with leading real estate private equity investor Lubert-Adler to invest up to $150 million in purchasing well-located vacant retail real estate. They plan to secure new tenants for these properties, focusing on credit-worthy brands seeking to expand their store count.
Four Corners' success has carried over into 2021. It received 99.8% of the rent it billed during the second quarter. One factor driving that strong rental collection rate is that many of its tenants are experiencing sales above the pre-pandemic levels of 2019. In addition, the REIT has continued to expand. Through the end of June, it had invested $105 million to purchase 49 properties, 61% outside the restaurant industry.
Four Corners Property Trust stock price
Four Corners has done a solid job creating value for investors over the years: