Overview

Four Springs Capital Trust (Pending:FSPR) filed an S-11/A on June 13, 2017, with the Securities and Exchange Commission for its upcoming initial public offering.

The company intends to offer 5.6 million shares at a marketed price range of $17 to $19, with an additional 840,000 shares over-allotted as an option for its underwriters. The company is expected to IPO on Friday (6.23).

Assuming, Four Springs Capital Trust prices at the mid-point of its price range, it would command a fully diluted market cap value of $199.8M.

The underwriters for the IPO include RBC Capital Markets, SunTrust Robinson Humphrey, BB&T Capital Markets, Capital One Securities, Ladenburg Thalmann, Wunderlich, Sandler O'Neill + Partners, L.P. and Boenning & Scattergood Inc.

We first covered this deal on our IPO Insights Platform.

Business overview

Four Springs Capital Trust is a real estate investment trust that focuses on acquiring, managing and owning properties with long-term net leases located throughout the U.S. Its objective is to generate predictable, rental income with low volatility which it accomplishes by targeting single tenant net leased properties for long term leases (typically 10-25 year initial terms) with investment grade or other creditworthy tenants. Additionally, its triple and double net lease structures means the tenant is responsible for all cost items including: real estate taxes, insurance premiums and maintenance expenses, eliminating FSPR exposure to unexpected increases.

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(Company Website)

Below is a list of investment criteria used for acquisitions.

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(Company Website)

Its tenants include 23 companies that operate in 18 different industries, including: Horizon Blue Cross Blue Shield, Domino's Pizza, FedEx, BJ's Wholesale, Gander Mountain, Walgreens, O'Reilly Auto Parts, Dollar General, Advance Auto Parts, Family Dollar and Aaron Rents.

(Company Website)

Below is a map showing the location of its properties.

(Company Website)

As of its IPO, it owned and managed 48 properties in 21 states that were 100 percent leased. The company is based in Lake Como, New Jersey.

Executive management team highlights

William P. Dioguardi is the chief executive officer and the chairman of the board of trustees for Four Springs Capital Trust. He has served in those roles since the company was formed in July 2012. He was the founding shareholder of Four Springs Capital LLC in Nov. 2008. Prior to that, he served as the president of Spencer Trask Ventures Inc. and founded and built Vantage Securities. Previously, Dioguardi held multiple senior roles at Integrated Resources Equity Corp. He holds a Bachelor of Science in business administration from Monmouth University.

Coby R. Johnson is the president of the company and has served in that role since June 2014. He has also served as the company's chief operating officer, the secretary and a trustee since the company was formed in July 2012. Johnson served as a managing director of Four Springs Capital LLC from Oct. 2010 until July 2012. Previously, he held multiple leadership roles in financial services, real estate and technology companies. He also practiced corporate and securities law at large firms in Boston and Philadelphia. Johnson holds a Bachelor of Arts in economics from the University of Illinois - Urbana and a Juris Doctor from the Emory University School of Law.

Financial highlights and risks

Total revenue generated was $6.9M, $12.1M, $14.7M in 2014, 2015, and 2016, respectively. Funds from Operations generated was $1.5M, $2.6M, and $2.0M, in 2014, 2015, and 2016, respectively. Expenses include: property expense, general administrative, professional fees, depreciation, interest expense, and acquisition costs. In 2015 and 2016, FSPR generated a net loss of 978K and $1.5M. As of its IPO, FSPR had cash and cash equivalents of $32.8M and total liabilities of $76.5M.

The company appears to be on a good track in 2017. For the three months that ended on March 31, 2017, the company reported total revenues of $4.4M, FFO of $1.5M and a net loss of $296,000. For the three months that ended on March 31, 2016, the company reported total revenues of $3.3M, FFO of 729K, and a net loss of $176,000.

Conclusion: Consider A Modest Investment

Four Springs has a proven track record of acquiring and managing net leased properties. Its properties are 100% leased, it leases to a diverse group of customers, and its net lease structure eliminates exposure to unexpected increased in taxes or maintenance costs.

We are optimistic about its growth prospect and view it as a buy and recommend investors looking for exposure to REITs consider a modest allocation.