Yahoo Finance

Joshua Zhang

Thanks, Bill. During the fourth quarter, FCPT acquired 45 properties for $133 million at a 7% cap rate. While we are pleased with 2024's $265 million acquisition volume, we are especially proud of the momentum we achieved in the second half of the year as our cost of capital improved.
In the second half of 2024, our team acquired $203 million across 66 properties, representing over 75% of our annual volume. In Q4, we acquired over 50% of our annual volume, including $87 million invested in the last few weeks of December alone. We are not compromising on the quality of our assets to meet yield or reach volume targets, as you can see in our press releases for each investment that many are with brands and operators we have worked with in the past.
Conversely, we are being patient and organized while seeking to offer sellers superior execution. The investments this quarter were pretty evenly split between restaurant, medical, retail and auto service sectors.
As for the full year 2024, restaurants made up approximately 42% of our acquisitions with medical retail at 30% and auto service at 28%. We do not plan our investments to have any specific thresholds or quotas across the three sectors, so the investment volume may vary from quarter-to-quarter based on opportunities we find attractive. However, we expect the new investments will be roughly even split between these categories over the long term.
As such, we are seeing success compound in our newer automotive and medical retail sectors as we continue to develop relationships here in. For example, in Q4, we executed a $25 million sale leaseback with a top automobile service operator for six newly built sites. We also completed a portfolio acquisition of nine primary urgent care clinics for $21 million as well as a $14 million sale leaseback with a leading investment-grade health care system for two of their retail outpatient centers.
The acquired properties all scored highly on our underwriting scorecard and were leased to top corporate operators in their respective industries. Further, these investments were all with new tenant relationships for FCPT as our team continues to establish our reputation in both sectors as a reliable real estate partner.
On the disposition front, we did not sell any properties in 2024. However, we are still receiving inquiries on our properties on a weekly basis and continue to contemplate strategic dispositions, both as an alternative to issuing new capital and as part of our active portfolio management strategy. For our portfolio as a whole, at year-end, we have 1,220 leases with 68% of our annual base rent coming from casual dining operators and 9% from quick service restaurants.
Outside of restaurants, automotive is our largest sector at 11% of ABR, followed by medical retail at 9% of ABR. We expect to continue our steady approach to diversifying over time.
Looking forward, we can continue to see an expanding opportunity set for further investments. For the Boulder Group's net lease market report, there are 3,929 single-tenant retail properties on the market overall in Q4, representing a 26.6% increase year over year.
With transaction volumes still recovering across the industry, we anticipate the pool of opportunities will expand accordingly in 2025. Although Q1 is typically our slowest quarter historically, we are expecting momentum for our fourth quarter to continue and encourage everyone to follow our press releases as we disclose every acquisition the day we close.
Patrick, back over to you.

Patrick Wernig

Thanks, Josh. I'll start by talking about capital sourcing and the state of our balance sheet.
At FCPT, we are highly focused on efficient capital raising. In the second half of the year, we were very active on our at-the-market equity program. In total, we raised over $318 million of equity during the year and $102 million in Q4 alone. That activity was heavily weighted to a few months, which demonstrates our ability to utilize the product at scale. Today, we still have $102 million of unsettled equity forwards.
Our fixed charge coverage ratio is a healthy 4.5 times. With respect to overall leverage, our net debt to adjusted EBITDAre in Q4 remained 4.9 times, inclusive of outstanding net equity forwards as of December 31.
Additionally, as announced two weeks ago, we extended and upsized our credit facility in January. This increased our revolver capacity to [$350 million] of incremental term loan, which is fully hedged at a 4.6% all-in interest rate.
Importantly, we also added a one-year extension option to our November 2026 term loan, taking care of all debt maturities for nearly two years. This facility recast provides FCPT with more liquidity for future acquisitions, all while maintaining a conservative pro forma net leverage of 5.1 times, including unsettled equity forwards.
Following the facility refinancing, we now have approximately $500 million in liquidity between cash, unsettled equity forwards and undrawn revolver capacity. Assuming no further equity issuance, we have an approximate $370 million of available capital before reaching 6 times net leverage. While markets remain volatile and treasury rates are elevated, we continued to diversify our capital sources and be thoughtful around when and how we raise capital. You can expect us to continue that disciplined approach.
Now turning to some of our financial highlights for Q4 and the year. We reported Q4 AFFO of $0.44 per share, which is up 2.3% from Q4 last year. Our full year 2024 AFFO per share of $1.73 is up 3.6% from 2023. Q4 cash rental income was $60.8 million, representing growth of 6.6% for the quarter compared to last year. Our full year 2024 cash rent of $235.4 million increased 8.8% versus 2023.
On a run rate basis, current annual cash base rent for leases in-place as of quarter end is $240.2 million, and our weighted average five-year annual cash rent escalator remains 1.4% Cash G&A expense, excluding stock-based compensation, was $3.9 million, representing 6.5% of cash rental income for the quarter.
The full year cash G&A was $16.8 million or 7.1% of cash rental income versus 7.6% in 2023 and 8% in 2022. This progress illustrates our continued efforts at efficient growth and the benefits of our improving scale. We are expecting cash G&A will be in the range of $18 million to $18.5 million for 2025. As a reminder, we take a conservative approach and do not capitalize any of the compensation costs related to our investment team.
As for managing our lease maturity profile, our team successfully renewed or re-tenanted 95% of FCPT's properties that had 2024 lease expirations. We've also made significant progress on 2025 lease renewals with 63% of those tenants already extending their lease or indicating intent to do so. At the start of 2024, 2025 lease maturities represented 2.2% of our annual base rent. But as of year-end 2024, it is down to just 1.1% of ABR.
Our portfolio occupancy today is 99.6%, and we collected 99.4% of base rent for the fourth quarter. There were no material changes to our collectibility or credit reserves nor any balance sheet impairments.
With that, we will turn it back over to Carly for questions.

Question and Answer Session

Operator

(Operator Instructions) Anthony Paolone, JPMorgan.

Anthony Paolone

Great. I appreciate the comments about the coverage and the credit quality in the portfolio. And it sounds like rents aren't particularly at risk here. But even if they aren't, just curious if you can talk a bit more about which areas underlying or just seeing better or worse trends at the margin even if rents aren't necessarily at risk.

William Lenehan

I don't think that there's a notable standout in what we have in our portfolio, Chili's being the obvious exception, but that's pretty particular to that brand. But our casual dining brands are growing. Our QSR exposure is predominantly to Burger King, which is doing well. And the other sectors that we're in are pretty defensive, and we've avoided a number of the places where our competitors are having to turn their attention and play defense. So we feel that it allows us to be very offense oriented.
For example, the COVID period where quick service with drive-thrus was dramatically outperforming restaurants that you had to go inside and sit down. All those trends have normalized. So it's very consistent across all our different exposures.

Anthony Paolone

Okay. And then just the only other item I had was you did obviously work on the balance sheet with the facility and so forth. So you're in good shape there. But -- just how should we think about how far off you might be from being like a public bond issue at this point?

William Lenehan

Well, it's something we're going to spend a lot of time working on. The upsize of our revolver was anticipation of having that as an option. So we've borrowed in the private note market historically. That's been very supportive of us. But at the moment, public bonds have more attractive pricing.
But as Patrick evidenced, we also have capacity to raise term loans at very attractive pricing as well. So we feel like we have a buffet of options on the debt side. But it's something that we'll be spending a lot of time on in 2025 in anticipation of being ready.

Operator

Kyle Katorincek, Janney Montgomery.

Kyle Katorincek

Exposure in non-restaurant retail segment grew roughly 4% to 5% a year over the last few years as a percent of the overall portfolio. And I think you mentioned around 60% of acquisitions last year were split between medical retail and auto service roughly. Should we expect a similar cadence going forward? Is this more a function of current cap rates?

William Lenehan

As Josh says, we don't plan it out that way, but I wouldn't be surprised if the trend that we've established continues. QSR is very competitive and the price points are a lot -- are a bit smaller. Casual dining, we have exposures with the exact brands that you'd want to have exposure to. And then medical retail, the buildings tend to be a little bit bigger. So it's a little bit easier to get capital deployed into that sector.
So I don't think we're trying to fill up buckets per se or hit thresholds that we preordain. But I could imagine it being similar to the past. And obviously, we're always looking for new sectors that we find interesting. So we're constantly doing a lot of research on that.

Kyle Katorincek

Okay. And then from a lease roll perspective, '25 and '26 are pretty light. But starting in '27, you have significant rollover from the initial Darden transaction. Today, where is the escalated pricing on those leases versus the market? Do you expect to get any locations back? And any other changes to those lease structures anticipated?

William Lenehan

Yes. The tenant has multiple extension options to their benefit, typically four or five-year extension options with 1.5% rent growth. So I would anticipate -- and this is an anticipation, not a given, but I would anticipate the vast, vast majority of those will renew because the tenant has coverage that's approaching 6 times.

Operator

(Operator Instructions) Michael Goldsmith, UBS.

Michael Goldsmith

You talked about returning to the green zone in the third quarter of last year and the acquisitions that followed. Just given the movement in interest rates, do you still feel good about being in the green zone and feeling good about the acquisition outlook for 2025?

William Lenehan

Yes. I think we are in the green zone now. But perhaps even more importantly, we have substantial capital that we raised when we were well in the green zone to use for acquisitions. So call it, $250 million of capital to be at the low end of our range and $350 million to be at the high end of our leverage range. So given what we've done in the last couple of years, we are in really good shape for having funded '25 acquisitions. And I think that frankly puts us in a pretty rare category compared to our peers.

Michael Goldsmith

I appreciate that. And then just in the presentation, it looked like rent collected declined sequentially or decelerated sequentially by 40 basis points. Can you talk a little bit about what's driving that?

William Lenehan

I don't think there's anything material. Some of that's just timing on -- we've acquired a lot of assets in December in the last couple of weeks. And so sometimes it takes a month to get rents shifted over to a new address. But there's no big read-through there.

Operator

John Kilichowski, Wells Fargo.

John Kilichowski

Maybe just a follow-up on that last question on the acquisition pipeline and just the market in general. I want to make sure I'm getting the right read through from your comments, but it sounds very positive like you're seeing heightened deal flow, you're expanding your team, underwriting has been great. I'm just kind of curious here coverage is picking up.
We're hearing anecdotally That competition is really coming back to the market on the private side. What's allowing you to source so many deals and maybe keep this acquisition cadence elevated from last quarter, given the influx of capital that's coming in and competing on deals? Or maybe are you competing in a different environment, you're not really seeing as much?

William Lenehan

Yes. There certainly has been a lot of talk about a handful of very large transactions where there was a lot of attention, deals that were north of a few hundred million dollars. So very sizable. We certainly look at all of those, but we are heads down on one individual properties, small portfolios. I think people understand that we have capital that was raised where we can buy things that are accretive, and we don't use leverage when we buy things. So the movements in the tenure make levered buyers less reliable, and we're not using leverage when we acquire things we borrow at the corporate level.
And I would say Josh has done a fantastic job of being super organized. And as this market has sort of whipsawed around being in constant contact even when we have disagreement with the seller on price and hanging around the hoop has really paid off. The acquisitions we closed in Q4, some of them we've been working on for two years, and we just couldn't get there on price.
And the conditions were such that we could lean in a little bit and ask for them to give up 15, 20 basis points on cap rate, and we get a lot of deals done. So I think it's -- we're accessing a more broad environment for acquisition transactions than simply waiting for very, very large sale leasebacks to happen, and that's proven very valuable.

John Kilichowski

And then maybe just jumping to a different area here. And I'm sure we're a bit early for this, but have you seen or heard anything from your tenants that they've been impacted at all on the labor side by any of the policies by the new administration?

William Lenehan

We haven't. But it's an interesting question. We operate seven steakhouses in San Antonio, and we've been in constant contact with the woman who runs that business. She's an exceptional business leader. We have not yet seen impact there.
And more broadly, we're monitoring all sorts of things that could be impacting the economy or our businesses because of the changes in political strategy in the country, and we haven't really found anything that's particularly -- would be a particularly standout to mention in the call.

Operator

(Operator Instructions) Rich Hightower, Barclays.

Richard Hightower

I think, Bill, just to flesh out maybe the last question there. You did mention also that you're constantly exploring new industry verticals for investment. And I guess just to be clear, as far as that goes, would you say that any policy changes that have been announced in the last few months or prospectively kind of in the future, how is that affecting underwriting? How is that affecting risk assessment? Or would you sort of reiterate that at least in the way you think about it currently, not much has changed?

William Lenehan

Yeah. We haven't seen a ton change yet, but the pace of change in Washington is obviously far greater than most people have been used to. So we're monitoring it closely. But I don't see any particular -- anything that we've seen particularly in the last few months change our acquisition scorecard, what we're trying to source, et cetera. I can give you many examples of real estate subsectors that might be significantly impacted, but they're not part of our historical strategy. So I don't see them impacting FCPT, but we're keeping our ears to the ground for sure.

Richard Hightower

Got it. Okay. And then forgive me if you guys have spelled this out on prior calls. But as far as the decision maybe not to give forward guidance, I mean, would you say that's more contingent on the sourcing of capital side or the uses of capital side? Or what maybe informs that philosophy at this point in the company's history?

William Lenehan

Sure. Well, I would say I think it's -- our company is very, very simple and purpose-built to be simple. So modeling out the earnings of the company is not an onerous task. We're certainly not a black box. And the Street has done a very good job of being relatively accurate. And because we announced our acquisitions and dispositions when they close, it gives the Street the ability and our investors the ability to forecast our cash flows.
But I think the bigger reason is perhaps the core to our strategy and what I think differentiates Four Corners than most of our peers, which is our intention is to modulate our acquisition volume with our cost of capital. And because our business is essentially issuing equity, turning it into cash for a short period of time and then buying buildings, it's quite important whether our stock is [22 or 28] when we do that.
And so because I can't forecast what my stock price is going to be throughout a year, and individual stocks tend to trade at wide bands, it's very, very difficult for me to both stick to that policy of modulating our acquisition volume and provide [them] meaningful.

Operator

Alec Feygin, Baird.

Alec Feygin

So the first one for me would be on G&A. Should we expect the platform to continue to scale in 2025 as you ramp up new employees? And maybe any other puts and takes on the G&A side?

William Lenehan

Sure. I think one thing that we probably don't get as much attention as we should is just the absolute low dollar amount of G&A that this company has. And it's been the case for 10 years. But given the size of our company, the dollar amount of our G&A is very low. And we continue to increase capacity.
We started with six people. We're now at 40. We have the largest incoming acquisition class that we've ever had, and they are incredibly impressive young people. But because we grow by hiring and developing young people and not typically doing much lateral hiring and because we're very lean at this C-suite level, our overall cash overhead is quite moderate.
But yes, our intention is if we have the cost of capital to grow accretively that we will continue to grow the business as we have in the last several years.

Alec Feygin

All right. And speaking on the pipeline, you mentioned that some negotiations have gone your way with sellers. And just can you maybe speak about how large of a pipeline of deals that you've been hanging around the hoop with and those sellers have not capitulated yet on price?

William Lenehan

Yes. We don't typically give guidance on pipeline. Q1 is typically a slower quarter. Q4 is typically the busiest quarter. I think Q1 is shaping up to be a good one this year.
But again, usually Q1 is a little shorter. And I don't know -- there's a vast amount of acquisitions that we could do if we were simply to drop our price 50 or 100 basis points, an enormous amount. But that delta is what changes acquisitions from being accretive to our -- to the owners of the business to simply growing -- to grow without any per share accretion. So I'm not sure it's something that we focus on because we're not going to do it.

Operator

(Operator Instructions) Mitch Germain, JMP.

Mitch Germain

Bill, you've talked about or Josh mentioned it in his comments, the underwriting scorecard. And I'm curious about the inputs and how often you look at them, you audit them and you modify or change the different variables that you're considering over time?

William Lenehan

So we've changed the scorecard minimally. The scorecard is relatively balanced. So you could change individual components slightly. I'm not sure you'd get different answers. We -- the language that surrounds the scorecard is culturally ingrained in the company. So we know as a team, what it means when we say this Burger King is a 78 or this tire store is a 63. And having some consistency around that really helps. So there isn't a ton of change.
Obviously, the scorecard is not the end all be all of our acquisition effort. It's a way to get aligned and communicate efficiently on what we're spending our time on. And we found that it is pretty darn accurate as far as we've had very, very, very little credit issues in this portfolio. But when we go back and look at deals that scored poorly and we didn't buy them, there tends to be a negative result as we survey things that we passed on.
That doesn't mean that every once in a blue moon, something doesn't come out that the scorecard wouldn't capture. But that's one property with a reason of X and another property of a weird reason of Y. And you can't have a scorecard that captures every possible outcome. But it's a grounding exercise that keeps us organized and it helps us avoid a lot of sort of sloppy decision-making. And I think it modestly helps in making sure that we're pricing things appropriately because you have a standard of quality that you can put against the standard of value.

Operator

Jim Kammert, Evercore.

James Kammert

I realize that the vast preponderance of your leasing or renewals is coming from the extension options. But if you think about '24, can you share what maybe were the representative sort of recovery rates where you did actually have a replacement tenant?

William Lenehan

Yes. It's been really positive, Jim, and we basically have recovered the rents that when we had to replace the tenant. I think that, that's largely due to heightened replacement costs and the fact that we focused on low rents. But I wouldn't get over your skis on that. The historical dynamic in net lease is if you lose a tenant, you'd struggle to replace the rents.
And so I think we've done a great job of replacing the rents. We've brought more resources into the company to get ahead of these things. But I wouldn't low yourself to sleep to think that you lose a net lease tenant, there's no big deal, you just find another one at the same rent. We've been fortunate that, that's been the case, but the sample size is really small, and we're in a very favorable market environment for leasing.

James Kammert

Fair enough. And then thinking about visibility of the transaction or investment pipeline, if you think about '24, what proportion of the deals that you closed would you say were widely marketed, let's say, 6 or 10 competitors in there bidding with Four Corners versus maybe more relationship where you're one or two or three folks inside the tent.

William Lenehan

Yes. It's interesting. There isn't a dynamic that we see very often on the size of deals that we're working on like you might see with a multiple hundred million dollar deal where there's a dynamic where on the 10th of the month, there's call for offers. On the 12th of the month, there's best and final. On the 14th of the month, there's best and final again and 15 bidders becomes 5, becomes 3, becomes 1.
Very often for us, it's here's a property, there may or may not be a broker involved, but there may not even be marketing materials. They know the kind of things we like to buy or the seller directly may know what we like to buy.
And it's sort of a look, we'll take this out to market and fully flog it. But if you can get to this price, which is slightly more attractive than what a marketed price would be, we'll just cut to the chase and deal with you. That's the typical flavor. That doesn't mean that every once in a while, we'll have a larger portfolio where there's a more formal process, but a lot of them are price agreed and transact before formal marketing materials have been put together.

Operator

Thank you very much. We currently have no further questions. So I'd like to hand back to Bill Lenehan for any closing remarks.

William Lenehan

Well, thank you, everyone. I'll note that the 13 minutes of prepared remarks was overwhelmed by a substantive Q&A session. Thank you for the interest.
Just bottom line, we're in a great position to start off '25, very strong Q4, below target leverage. We have substantial capital that was raised at very attractive pricing and a pipeline that will keep us very busy, and the team that's growing with exceptionally young talent.
So we're really excited about '25, and please reach out if you have any questions.

Operator

This concludes today's call. We'd like to thank everyone for joining. You may now disconnect your lines.