Acquisitions Of Retail Properties Will Reinforce Future Revenue Stability

Key Takeaways

• FCPT's decreased cost of capital and significant equity raise bolster acquisition and earnings growth potential while maintaining low leverage.
  
• Strong portfolio metrics and diversification enhance revenue stability and resilience, with active acquisitions supporting further revenue and earnings growth.
  
• Rising borrowing costs and tenant concentration risk could strain FCPT's financial stability and acquisition capabilities, impacting future earnings and revenue growth.

Catalysts

FCPT, headquartered in Mill Valley, CA, is a real estate investment trust primarily engaged in the ownership, acquisition and leasing of restaurant and retail properties.

• The company's cost of capital has recently decreased, allowing FCPT to resume its acquisition activities more aggressively, which is expected to drive future revenue growth.
  
• FCPT has raised significant capital, including $224 million in equity, positioning them for future acquisitions and supporting earnings growth through expansion while maintaining low leverage.
  
• The company's in-place portfolio shows strong rent collections and high occupancy rates of 99.6%, suggesting stable revenue and margin performance going forward.
  
• Diversification efforts have progressed, with FCPT reaching a milestone of 156 brands within the portfolio, which should contribute to more resilient earnings.
  
• The acquisition pipeline is active, leveraging improved market conditions and an extensive network for sourcing high-quality deals, which should have a favorable impact on revenue and earnings growth.

Four Corners Property Trust Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Four Corners Property Trust's revenue will grow by 6.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 37.3% today to 40.5% in 3 years time.
• Analysts expect earnings to reach $128.0 million (and earnings per share of $1.18) by about December 2027, up from $98.7 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $113.6 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 30.9x on those 2027 earnings, up from 27.5x today. This future PE is greater than the current PE for the US Specialized REITs industry at 26.1x.
• Analysts expect the number of shares outstanding to grow by 3.75% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.39%, as per the Simply Wall St company report.

Four Corners Property Trust Future Earnings Per Share Growth

Risks

• Rising borrowing costs and uncertainties with debt maturities in 2025 could impact FCPT's acquisition capabilities and financial leverage, putting pressure on future earnings.
  
• Potential softening in consumer spending could negatively affect rental income from retail operators, impacting revenue and profitability.
  
• Heavy reliance on a few large tenants such as Darden and Brinker may pose concentration risk, potentially affecting revenue stability if these tenants face financial difficulties.
  
• Market competition in acquisitions, especially as liquidity improves, could constrain FCPT’s ability to secure high-return investments, impacting acquisition-driven revenue growth.
  
• Economic and market uncertainties, including political factors like elections and inflationary pressures, may affect the net lease market, potentially impacting FCPT's acquisition pipeline and financial margins.

Valuation

• The analysts have a consensus price target of $30.38 for Four Corners Property Trust based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $316.1 million, earnings will come to $128.0 million, and it would be trading on a PE ratio of 30.9x, assuming you use a discount rate of 6.4%.
• Given the current share price of $28.11, the analyst's price target of $30.38 is 7.5% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.