Fitch Ratings has affirmed the Long-Term Issuer Default Ratings (IDRs) for
The Rating Outlook is Stable.
The affirmation and Stable Outlook reflect the company's strong credit metrics, high tenant rent coverage, and Fitch's expectations that FCPT will maintain stable operating performance over the long term.
Key Rating Drivers
Strong Credit Metrics: Fitch expects FCPT to maintain leverage in the mid-to-high-5x range during the forecast period as the firm continues to fund acquisitions with a largely leverage-neutral mix of debt and equity issuance. The company's strong credit metrics and liquidity profile provide significant flexibility if it needed to manage through a period of extended operating weakness in its tenant base.
Diversifying Large Tenant Concentration: FCPT has significant tenant concentration, with its top 10 tenants accounting for 69.5% of 2Q23 annualized base rent (ABR). The company's largest exposure is to
In 2022, FCPT acquired 112 properties for
High Tenant Rent Coverage: Fitch forecasts
Geographic Diversification: The company's portfolio benefits from geographic diversity with over 1,000 properties in nearly all 50 states. The top two states,
Limited Near-Term Lease Maturities Aid Stability: The portfolio has a weighted average lease term of 8.1 years with less than 7.5% of rental income expiring prior to 2027. This extended expiration schedule will minimize the potential for occupancy decreases and rent roll down on expiring leases during periods of economic stress. The portfolio was 99.9% occupied as of
Lower Capital Markets Access: The company has yet to access the public bond market.
Derivation Summary
FCPT was spun off from
Fitch rates the IDRs of the parent REIT and subsidiary operating partnership on a consolidated basis, using the weak parent/strong subsidiary approach and open access and control factors, based on the entities operating as a single enterprise with strong legal and operational ties.
Key Assumptions
Same-store NOI growth of 1.0%-1.5% annually during the forecast period;
Net acquisitions of
Equity Issuances in the range of
Bond Issuances of
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade:
Material progress in
Fitch's expectation of REIT leverage (net debt/operating EBITDA) sustaining below 5x;
Increased capital access, including public bond issuance;
Fitch's expectation of FCC sustaining above 3.5x.
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade:
Deterioration in Darden's credit profile or in the casual dining restaurant industry;
Fitch's expectation of REIT leverage sustaining above 6x;
Deterioration in the mortgage finance market for restaurant properties;
UA/UD sustaining below 2.0x and/or deterioration in the quality, value and/or ability to finance the unencumbered pool;
Fitch's expectation of FCC sustaining below 2.5x.
Best/Worst Case Rating Scenario
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
Liquidity and Debt Structure
Strong Liquidity: Fitch estimates
Fitch defines liquidity coverage as sources of liquidity divided by uses of liquidity. Sources include unrestricted cash, availability under unsecured revolving credit facilities, and retained cash flow from operating activities after dividends. Uses include pro rata debt maturities, expected recurring capex and forecast (re)development costs.
Issuer Profile
Summary of Financial Adjustments
No material non-standard financial adjustments. Stock-based compensation was considered a reduction to SG&A and an addback to EBITDA.
Sources of Information
The principal sources of information used in the analysis are described in the Applicable Criteria.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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