Four Corners Property Trust, Inc. - Quarter Report: 2022 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 1-37538

Four Corners Property Trust, Inc.

(Exact name of registrant as specified in its charter)


Maryland			47-4456296
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

591 Redwood Highway,

Suite 3215,

Mill Valley,

94941

(Address of principal executive offices)

(415) 965-8030

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of Exchange on Which Registered
Common Stock, $0.0001 par value per share	FCPT	New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐Yes ☒ No

Number of shares of common stock outstanding as of November 2, 2022: 83,887,293

FOUR CORNERS PROPERTY TRUST, INC.

FORM 10 - Q

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022

TABLE OF CONTENTS


		Page
Part I	FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Consolidated Balance Sheets at September 30, 2022 (unaudited) and December 31, 2021	1
	Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2022 and 2021 (unaudited)	2
	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2022 and 2021 (unaudited)	3
	Consolidated Statements of Changes in Equity for the Three and Nine Months Ended September 30, 2022 and 2021 (unaudited)	4
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021 (unaudited)	6
	Notes to Consolidated Financial Statements (unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41
Item 4.	Controls and Procedures	41

Part II	OTHER INFORMATION
Item 1.	Legal Proceedings	42
Item 1A.	Risk Factors	42
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 3.	Defaults Upon Senior Securities	42
Item 4.	Mine Safety Disclosure	42
Item 5.	Other Information	42
Item 6.	Exhibits	42
	Index to Exhibits	43
	Signatures	44

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

FOUR CORNERS PROPERTY TRUST, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)


	September 30, 2022 (Unaudited)		December 31, 2021
ASSETS
Real estate investments:
Land	$	1,056,228	$	966,565
Buildings, equipment and improvements	1,490,729		1,437,840
Total real estate investments	2,546,957		2,404,405
Less: Accumulated depreciation	(700,499)		(682,430)
Total real estate investments, net	1,846,458		1,721,975
Intangible lease assets, net	106,947		104,251
Total real estate investments and intangible lease assets, net	1,953,405		1,826,226

Cash and cash equivalents	36,669		6,300
Straight-line rent adjustment	59,873		55,397
Derivative assets	36,448		2,591
Deferred tax assets	920		864
Other assets	12,562		11,602
Total Assets	$	2,099,877	$	1,902,980

LIABILITIES AND EQUITY
Liabilities:
Long-term debt, net of deferred financing costs	$	966,989	$	877,591
Dividends payable	27,487		26,655
Rent received in advance	11,870		11,311
Derivative liabilities	—		7,517
Other liabilities	24,800		16,014
Total liabilities	1,031,146		939,088

Equity:
Preferred stock, par value 0.0001 per share; 25,000,000 authorized, zero shares issued and outstanding	—		—
Common stock, par value 0.0001 per share; 500,000,000 shares authorized, 82,822,584 and 80,279,217 shares issued and outstanding, respectively	8		8
Additional paid-in capital	1,027,716		958,737
Retained earnings	6,771		12,753
Accumulated other comprehensive income (loss)	31,968		(9,824)
Noncontrolling interest	2,268		2,218
Total equity	1,068,731		963,892
Total Liabilities and Equity	$	2,099,877	$	1,902,980

The accompanying notes are an integral part of this financial statement.

FOUR CORNERS PROPERTY TRUST, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except share and per share data)

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Revenues:
Rental revenue	$	48,719	$	43,673	$	143,526	$	127,350
Restaurant revenue	7,289		7,033		22,304		19,374
Total revenues	56,008		50,706		165,830		146,724
Operating expenses:
General and administrative	4,917		4,262		14,884		13,490
Depreciation and amortization	10,588		8,831		30,420		25,455
Property expenses	1,999		1,453		5,835		3,657
Restaurant expenses	6,790		6,546		20,725		17,994
Total operating expenses	24,294		21,092		71,864		60,596
Interest expense	(9,177)		(8,311)		(26,583)		(24,328)
Other income	164		2		250		10
Realized gain on sale	1,828		—		7,584		431
Income tax benefit (expense)	23		(97)		(209)		(231)
Net income	24,552		21,208		75,008		62,010
Net income attributable to noncontrolling interest	(34)		(44)		(105)		(129)
Net Income Available to Common Shareholders	$	24,518	$	21,164	$	74,903	$	61,881

Basic net income per share:	$	0.30	$	0.28	$	0.93	$	0.81
Diluted net income per share:	$	0.30	$	0.28	$	0.92	$	0.81
Weighted average number of common shares outstanding:
Basic	81,884,974		76,250,614		80,797,829		76,094,133
Diluted	82,119,447		76,360,526		81,011,737		76,222,167
Dividends declared per common share	$	0.3325	$	0.3175	$	0.9975	$	0.9525

The accompanying notes are an integral part of this financial statement.

FOUR CORNERS PROPERTY TRUST, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands, except for share and per share data)

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net income	$	24,552	$	21,208	$	75,008	$	62,010
Other comprehensive income:
Effective portion of change in fair value of derivative instruments	17,151		1,340		39,151		6,447
Reclassification adjustment of derivative instruments included in net income	(104)		1,748		2,700		5,220
Other comprehensive income	17,047		3,088		41,851		11,667
Comprehensive income	41,599		24,296		116,859		73,677
Less: comprehensive income attributable to noncontrolling interest
Net income attributable to noncontrolling interest	34		44		105		129
Other comprehensive income attributable to noncontrolling interest	24		6		59		24
Comprehensive income attributable to noncontrolling interest	58		50		164		153
Comprehensive Income Attributable to Common Shareholders	$	41,541	$	24,246	$	116,695	$	73,524

The accompanying notes are an integral part of this financial statement.

FOUR CORNERS PROPERTY TRUST, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(In thousands, except share data)

(Unaudited)

For the Three Months Ended September 30, 2022


	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Noncontrolling Interest		Total
	Shares	Par Value
Balance at June 30, 2022	80,543,986	$	8	$	964,607	$	9,740	$	14,945	$	2,248	$	991,548
Net income	—	—		—		24,518		—		34		24,552
Other comprehensive income	—	—		—		—		17,023		24		17,047

ATM proceeds, net of issuance costs	2,277,782	—		61,903		—		—		—		61,903
Dividends and distributions to equity holders	—	—		—		(27,487)		—		(38)		(27,525)
Stock-based compensation, net	816	—		1,206		—		—		—		1,206
Balance at September 30, 2022	82,822,584	$	8	$	1,027,716	$	6,771	$	31,968	$	2,268	$	1,068,731

For the Nine Months Ended September 30, 2022


	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Noncontrolling Interest		Total
	Shares	Par Value
Balance at December 31, 2021	80,279,217	$	8	$	958,737	$	12,753	$	(9,824)	$	2,218	$	963,892
Net income	—	—		—		74,903		—		105		75,008
Other comprehensive income	—	—		—		—		41,792		59		41,851

ATM proceeds, net of issuance costs	2,451,206	—		66,257		—		—		—		66,257
Dividends and distributions to equity holders	—	—		—		(80,885)		—		(114)		(80,999)
Stock-based compensation, net	92,161	—		2,722		—		—		—		2,722
Balance at September 30, 2022	82,822,584	$	8	$	1,027,716	$	6,771	$	31,968	$	2,268	$	1,068,731

The accompanying notes are an integral part of this financial statement.

For the Three Months Ended September 30, 2021


	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Noncontrolling Interest		Total
	Shares	Par Value
Balance at June 30, 2021	76,202,401	$	8	$	844,334	$	19,052	$	(17,134)	$	3,063	$	849,323
Net income	—	—		—		21,164		—		44		21,208
Other comprehensive loss	—	—		—		—		3,082		6		3,088
Redemption of OP units	44,833	—		862		—		—		(862)		—
ATM proceeds, net of issuance costs	1,000,193	—		27,140		—		—		—		27,140
Dividends and distributions to equity holders	—	—		—		(24,508)		—		(36)		(24,544)
Stock-based compensation, net	(1,701)	—		838		—		—		—		838
Balance at September 30, 2021	77,245,726	$	8	$	873,174	$	15,708	$	(14,052)	$	2,215	$	877,053

For the Nine Months Ended September 30, 2021


	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Noncontrolling Interest		Total
	Shares	Par Value
Balance at December 31, 2020	75,874,966	$	8	$	840,455	$	26,672	$	(25,695)	$	3,061	$	844,501
Net income	—	—		—		61,881		—		129		62,010
Other comprehensive loss	—	—		—		—		11,643		24		11,667
Redemption of OP units	44,833	—		862		—		—		(862)		—
ATM proceeds, net of issuance costs	1,161,702	—		31,799		—		—		—		31,799
Dividends and distributions to equity holders	—	—		—		(72,845)		—		(137)		(72,982)
Stock-based compensation, net	164,225	—		58		—		—		—		58
Balance at September 30, 2021	77,245,726	$	8	$	873,174	$	15,708	$	(14,052)	$	2,215	$	877,053

The accompanying notes are an integral part of this financial statement.

FOUR CORNERS PROPERTY TRUST, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Nine Months Ended September 30,
	2022		2021
Cash flows - operating activities
Net income	$	75,008	$	62,010
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	30,420		25,455
Realized gain on sale	(7,584)		(431)
Non-cash revenue adjustments	1,600		1,590
Amortization of financing costs	1,460		1,901
Stock-based compensation expense	3,739		3,092
Deferred income taxes	(57)		—
Changes in assets and liabilities:
Derivative assets and liabilities	477		2,283
Straight-line rent adjustment	(4,939)		(5,775)
Rent received in advance	559		(1,197)
Intangible assets (lease incentive payments)	—		(815)
Other assets and liabilities	8,604		5,934
Net cash provided by operating activities	109,287		94,047
Cash flows - investing activities
Purchases of real estate investments	(171,835)		(195,105)
Proceeds from sale of real estate investments	20,365		3,343
Advance refunds on acquisition of operating real estate	(459)		(148)
Net cash used in investing activities	(151,929)		(191,910)
Cash flows - financing activities
Net proceeds from ATM equity issuance	66,257		31,799

Proceeds from issuance of senior notes	125,000		100,000
Payment of deferred financing costs	(1,062)		(4,625)
Proceeds from revolving credit facility	28,000		148,500
Repayment of revolving credit facility	(64,000)		(105,500)
Payment of dividends to shareholders	(80,053)		(72,395)
Distributions to non-controlling interests	(114)		(137)

Employee shares withheld for taxes	(1,017)		(3,034)
Net cash provided by financing activities	73,011		94,608
Net increase (decrease) in cash and cash equivalents, including restricted cash	30,369		(3,255)
Cash and cash equivalents, including restricted cash, at beginning of period	6,300		11,064
Cash and cash equivalents, including restricted cash, at end of period	$	36,669	$	7,809
Supplemental disclosures:
Interest paid	$	17,318	$	12,292
Income taxes paid	$	358	$	291
Operating lease payments received (lessor)	$	135,546	$	120,462
Operating lease payments remitted (lessee)	$	680	$	659
Non-cash activities:
Dividends declared but not paid	$	27,487	$	24,508
Change in fair value of derivative instruments	$	41,374	$	9,384

The accompanying notes are an integral part of this financial statement.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 – ORGANIZATION

Four Corners Property Trust, Inc. (together with its consolidated subsidiaries, “FCPT”) is an independent, publicly traded, self-administered company, primarily engaged in the ownership, acquisition and leasing of restaurant and retail properties. Substantially all of our business is conducted through Four Corners Operating Partnership, LP (“FCPT OP”), a Delaware limited partnership of which we are the initial and substantial limited partner. Our wholly owned subsidiary, Four Corners GP, LLC (“FCPT GP”), is its sole general partner.

Any references to “the Company,” “we,” “us,” or “our” refer to FCPT as an independent, publicly traded, self-administered company.

FCPT was incorporated as a Maryland corporation on July 2, 2015 as a wholly owned indirect subsidiary of Darden Restaurants, Inc., (together with its consolidated subsidiaries “Darden”), for the purpose of owning, acquiring and leasing properties on a triple-net basis, for use in the restaurant and other retail industries. On November 9, 2015, Darden completed a spin-off of FCPT whereby Darden contributed to us 100% of the equity interest in entities that owned 418 properties in which Darden operates restaurants, representing five of their brands, and six LongHorn Steakhouse restaurants located in the San Antonio, Texas area (the “Kerrow Restaurant Operating Business”) along with the underlying properties or interests therein associated with the Kerrow Restaurant Operating Business. In exchange, we issued to Darden all of our common stock and paid to Darden $315.0 million in cash. Subsequently, Darden distributed all of our outstanding shares of common stock pro rata to holders of Darden common stock whereby each Darden shareholder received one share of our common stock for every three shares of Darden common stock held at the close of business on the record date, which was November 2, 2015, as well as cash in lieu of any fractional shares of our common stock which they would have otherwise received.

We believe that we have been organized and have operated in conformity with the requirements for qualification and taxation as a real estate investment trust (a “REIT”) for federal income tax purposes commencing with our taxable year ended December 31, 2016, and we intend to continue to operate in a manner that will enable us to maintain our qualification as a REIT. To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute at least 90% of our REIT taxable income to our shareholders, subject to certain adjustments and excluding any net capital gain. As a REIT, we will not be subject to federal corporate income tax on that portion of net income that is distributed to our shareholders. However, FCPT’s taxable REIT subsidiaries (“TRS”) will generally be subject to federal, state, and local income taxes. We made our REIT election upon the filing of our 2016 tax return.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Basis of Presentation

The accompanying consolidated financial statements (the “Consolidated Financial Statements”) include the accounts of Four Corners Property Trust, Inc. and its consolidated subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

The Consolidated Financial Statements reflect all adjustments which are, in the opinion of management, necessary to a fair presentation of the results for the interim periods presented. These adjustments are considered to be of a normal, recurring nature.

Use of Estimates

The preparation of these Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. The estimates and assumptions used in the accompanying Consolidated Financial Statements are based on management’s evaluation of the relevant facts and circumstances. Actual results may differ from the estimates and assumptions used in preparing the accompanying Consolidated Financial Statements, and such differences could be material.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Real Estate Investments, Net

Real estate investments, net are recorded at cost less accumulated depreciation. Building components are depreciated over estimated useful lives ranging from seven to fifty-five years using the straight-line method. Leasehold improvements, which are reflected on our Consolidated Balance Sheets as a component of buildings, equipment, and improvements, net are amortized over the lesser of the non-cancelable lease term or the estimated useful lives of the related assets using the straight-line method. Equipment is depreciated over estimated useful lives ranging from two to fifteen years also using the straight-line method. Real estate development and construction costs for newly constructed restaurant and retail locations are capitalized in the period in which they are incurred. Gains and losses on the disposal of land, buildings, and equipment are included in realized gain on sale, net, in our accompanying Consolidated Statements of Income (“Income Statements”).

Our accounting policies regarding land, buildings, equipment, and improvements, include our judgments regarding the estimated useful lives of these assets, the residual values to which the assets are depreciated or amortized, the determination of what constitutes a reasonably assured lease term, and the determination as to what constitutes enhancing the value of or increasing the life of existing assets. These judgments and estimates may produce materially different amounts of reported depreciation and amortization expense if different assumptions were used. As discussed further below, these judgments may also impact our need to recognize an impairment charge on the carrying amount of these assets as the cash flows associated with the assets are realized, or as our expectations of estimated future cash flows change.

Acquisition of Real Estate

The Company evaluates acquisitions to determine whether transactions should be accounted for as asset acquisitions or business combinations in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2017-01. The Company has determined the land, building, site improvements, and in-places leases (if any) of assets acquired were each single assets as the building and property improvements are attached to the land and cannot be physically removed and used separately from the land without incurring significant costs or reducing their fair value. Additionally, the Company has not acquired a substantive process used to generate outputs. As substantially all of the fair value of the gross assets acquired are concentrated in a single identifiable asset and there were no processes acquired, the acquisitions do not qualify as a business and are accounted for as asset acquisitions. Related transaction costs are generally capitalized and amortized over the useful life of the acquired assets.

The Company allocates the purchase price (including acquisition and closing costs) of real estate acquisitions to land, building, and improvements based on their relative fair values. The determination of the building fair value is on an ‘as-if-vacant’ basis. Value is allocated to acquired lease intangibles (if any) based on the costs avoided and revenue recognized by acquiring the property subject to lease and avoiding an otherwise ‘dark period’. In making estimates of fair values for this purpose, the Company uses a third-party specialist that obtains various information about each property, as well as the pre-acquisition due diligence of the Company and prior leasing activities at the site.

Lease Intangibles

Lease intangibles, if any, acquired in conjunction with the purchase of real estate represent the value of in-place leases and above- or below-market leases. For real estate acquired subject to existing lease agreements, acquired lease intangibles are valued based on the Company’s estimates of costs related to tenant acquisition and the asset carrying costs, including lost revenue, that would be incurred during the time it would take to locate a tenant if the property were vacant, considering current market conditions and costs to execute similar leases at the time of the acquisition. Above-market and below-market lease intangibles are recorded based on the present value of the difference between the contractual amounts to be paid pursuant to the leases at the time of acquisition of the real estate and the Company’s estimate of current market lease rates for the property, measured over a period equal to the remaining initial term of the lease.

In-place lease intangibles are amortized on a straight-line basis over the remaining initial term of the related lease and included in depreciation and amortization expense. Above-market lease intangibles are amortized over the remaining initial terms of the respective leases as a decrease in rental revenue. Below-market lease intangibles are generally amortized as an increase to rental revenue over the remaining initial term of the respective leases, but may be amortized over the renewal periods if the Company believes it is likely the tenant will exercise the renewal option. Should a lease terminate early, the

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

unamortized portion of any related lease intangible is immediately recognized as an impairment loss included in depreciation and amortization expense. To date, the Company has not had significant early terminations.

Finance ground lease assets are also included in lease intangible assets, net on the Consolidated Balance Sheets. See Leases below for additional information.

Impairment of Long-Lived Assets

Land, buildings and equipment and certain other assets, including definite-lived intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Such events and changes may include macroeconomic conditions, including those caused by global pandemics, like the recent coronavirus disease pandemic (“COVID-19”) and restrictions intended to prevent its spread, which may result in property operational disruption and indicate that the carrying amount may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to the future undiscounted net cash flows expected to be generated by the assets. Identifiable cash flows are measured at the lowest level for which they are largely independent of the cash flows of other groups of assets and liabilities, generally at the restaurant and retail level. If these assets are determined to be impaired, the amount of impairment recognized is measured by the amount by which the carrying amount of the assets exceeds their fair value. Fair value is generally determined by appraisals or sales prices of comparable assets.

The judgments we make related to the expected useful lives of long-lived assets and our ability to realize undiscounted cash flows in excess of the carrying amounts of these assets are affected by factors such as the ongoing maintenance and improvements of the assets, changes in economic conditions, changes in usage or operating performance, desirability of the restaurant and retail sites and other factors, such as our ability to sell our assets held for sale. As we assess the ongoing expected cash flows and carrying amounts of our long-lived assets, significant adverse changes in these factors could cause us to realize a material impairment loss.

Exit or disposal activities include the cost of disposing of the assets and are generally expensed as incurred. Upon disposal of the assets, any gain or loss is recorded in the same caption within our Income Statements as the original impairment. Provisions for impairment are included in depreciation and amortization expense in the accompanying Income Statements. We did not record impairment expense during the nine months ended September 30, 2022 or 2021.

Real Estate Held for Sale

Real estate is classified as held for sale when the sale is probable, will be completed within one year, purchase agreements are executed, the buyer has a significant deposit at risk, and no financing contingencies exist which could prevent the transaction from being completed in a timely manner. Restaurant and retail sites and certain other assets to be disposed of are included in assets held for sale when the likelihood of disposing of these assets within one year is probable. Assets whose disposal is not probable within one year remain in land, buildings, equipment and improvements until their disposal within one year is probable. Disposals of assets that have a major effect on our operations and financial results or that represent a strategic shift in our operating businesses meet the requirements to be reported as discontinued operations. Real estate held for sale is reported at the lower of carrying amount or fair value, less estimated costs to sell. No properties were held for sale at September 30, 2022 or December 31, 2021.

Cash, Cash Equivalents, and Restricted Cash

We consider all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash and cash equivalents can consist of cash and money market accounts. Restricted cash consists of 1031 tax deferred real estate exchange proceeds and is included in Other assets in our Consolidated Balance Sheets.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

The following table provides a reconciliation of cash, cash equivalents, and restricted cash in our Consolidated Balance Sheets to the total amount shown in our Consolidated Statements of Cash Flows:


	September 30,		December 31,
(In thousands)	2022		2021
Cash and cash equivalents	$	36,669	$	6,300
Restricted cash (included in Other assets)	—		—
Total Cash, Cash Equivalents, and Restricted Cash	$	36,669	$	6,300

Long-term Debt

Long-term debt is carried at unpaid principal balance, net of deferred financing costs. All of our long-term debt is currently unsecured and interest is paid monthly on our non-amortizing term loans and revolving credit facility and semi-annually on our senior fixed rate notes.

Deferred Financing Costs

Financing costs related to long-term debt are deferred and amortized over the remaining life of the debt using the effective interest method. These costs are presented as a direct deduction from their related liabilities in the Consolidated Balance Sheets.

See Note 6 - Long-term Debt, Net of Deferred Financing Costs for additional information.

Derivative Instruments and Hedging Activities

We enter into derivative instruments for risk management purposes only, including derivatives designated as hedging instruments as required by FASB ASC Topic 815, Derivatives and Hedging, and those utilized as economic hedges. Our use of derivative instruments is currently limited to interest rate hedges. These instruments are generally structured as hedges of the variability of cash flows related to forecasted transactions (cash flow hedges). We do not enter into derivative instruments for trading or speculative purposes, where changes in the cash flows of the derivative are not expected to offset changes in cash flows of the hedged item. All derivatives are recognized on the balance sheet at fair value. For those derivative instruments for which we intend to elect hedge accounting, at the time the derivative contract is entered into, we document all relationships between hedging instruments and hedged items, as well as our risk-management objective and strategy for undertaking the various hedge transactions. This process includes linking all derivatives designated as cash flow hedges to specific assets and liabilities on the consolidated balance sheet or to specific forecasted transactions. We also formally assess, both at the hedge’s inception and on an ongoing basis, whether the derivatives used in hedging transactions are highly effective in offsetting changes in cash flows of hedged items.

To the extent our derivatives are effective in offsetting the variability of the hedged cash flows, and otherwise meet the cash flow hedge accounting criteria in accordance with United States generally accepted accounting principles (“U.S. GAAP”), changes in the derivatives’ fair value are not included in current earnings but are included in accumulated other comprehensive income, net of tax. These changes in fair value will be reclassified into earnings at the time of the forecasted transaction. Ineffectiveness measured in the hedging relationship is recorded in earnings in the period in which it occurs.

See Note 7 - Derivative Financial Instruments for additional information.

Other Assets and Liabilities

Other assets primarily consist of right of use operating lease assets, pre-acquisition costs, restricted cash, prepaid assets, food and beverage inventories for use by our Kerrow operating subsidiary, escrow deposits, and accounts receivable. Other liabilities primarily consist of accrued compensation, accrued interest expense, accrued operating expenses, intangible lease liabilities, and operating lease liabilities.

See Note 8 - Supplemental Detail for Certain Components of Consolidated Balance Sheets for additional information.

Leases

Effective January 1, 2019, the Company adopted FASB Accounting Standards Codification 842, Leases, including effective amendments (“ASC 842”). All significant lease arrangements are generally recognized at lease commencement. For

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

leases where the Company is the lessee upon adoption of ASC 842, operating or finance lease right-of-use (“ROU”) assets and lease liabilities are recognized at commencement based on the present value of lease payments over the lease term. ROU assets represent our right to use an underlying asset during the reasonably certain lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense is recognized on a straight-line basis over the lease term.

As part of certain real estate investment transactions, the Company may enter into long-term ground leases as a lessee. The Company recognizes a ground lease (or right-of-use) asset and related lease liability for each of these ground leases. Ground lease assets and lease liabilities are recognized based on the present value of the lease payments. The Company uses its estimated incremental borrowing rate, which is the estimated rate at which the Company could borrow on a collateralized basis with similar payments over a similar term, in determining the present value of the lease payments.

For leases where the Company is the lessor, we determine the classification upon commencement. At September 30, 2022, all such leases are classified as operating leases. These operating leases may contain both lease and non-lease components. The Company accounts for lease and non-lease components as a single component.

See Note 5 - Leases for additional information.

Revenue Recognition

Rental Revenue

For those net leases that provide for periodic and determinable increases in base rent, base rental revenue is recognized on a straight-line basis over the applicable lease term when collectability is probable. Recognizing rental revenue on a straight-line basis generally results in recognized revenues during the first half of a lease term exceeding the cash amounts contractually due from our tenants, creating a deferred rent receivable.

In certain circumstances, the Company may offer tenant allowance funds in exchange for increasing rent, extending the term, and including annual sales reporting among other items. These tenant allowance funds are classified as lease incentives upon payment and are amortized as a reduction to revenue over the lease term. Lease incentives are included in intangible lease assets, net, on our Consolidated Balance Sheets. The Company did not pay any lease incentives to tenants during the nine months ended September 30, 2022. During the year ended December 31, 2021, the Company paid lease incentives of $1.2 million to tenants.

We assess the collectability of our lease receivables, including deferred rents receivable, on several factors, including payment history, the financial strength of the tenant and any guarantors, historical operations and operating trends of the property, and current economic conditions. If our evaluation of these factors indicates it is not probable that we will be able to recover substantially all of the receivable, we derecognize the deferred rent receivable asset and record that revenue as a reduction in rental revenue. If we determine the lease receivable will not be collected due to a credit concern, we reduce the recorded revenue for the period and related accounts receivable.

For those leases that provide for periodic increases in base rent only if certain revenue parameters or other substantive contingencies are met, the increased rental revenue is recognized as the related parameters or contingencies are met, rather than on a straight-line basis over the applicable lease term. Costs paid by the lessor and reimbursed by the lessees are included in variable lease payments and presented on a gross basis within rental revenue. Sales taxes collected from lessees and remitted to governmental authorities are presented on a net basis within rental revenue.

Restaurant Revenue

Restaurant revenue represents food, beverage, and other products sold and is presented net of the following discounts: coupons, employee meals, complimentary meals and gift cards. Revenue from restaurant sales, whether received in cash or by credit card, is recognized when food and beverage products are sold. At September 30, 2022 and December 31, 2021, credit card receivables, included in other assets, totaled $133 thousand and $116 thousand, respectively. We recognize sales from our gift cards when the gift card is redeemed by the customer. Sales taxes collected from customers and remitted to governmental authorities are presented on a net basis within restaurant revenue on our Consolidated Income Statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Restaurant Expenses

Restaurant expenses include restaurant labor, general and administrative expenses, rent expense, and food and beverage costs. Food and beverage costs include inventory, warehousing, related purchasing and distribution costs. Vendor allowances received in connection with the purchase of a vendor’s products are recognized as a reduction of the related food and beverage costs as earned.

Realized Gain on Sale

The Company recognizes gain on sale of real estate in accordance with FASB ASU No. 2017-05, “Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets.” The Company evaluates each transaction to determine if control of the asset, as well as other specified criteria, has been transferred to the buyer to determine proper timing of revenue recognition, as well as transaction price allocation. During the three months ended September 30, 2022, the Company sold four properties, which resulted in a realized gain of $1.8 million. During the nine months ended September 30, 2022, the Company sold seven properties, which resulted in a realized gain of $7.6 million. During the three months ended September 30, 2021, the Company did not sell any properties. During the nine months ended September 30, 2021, the Company sold two properties, which resulted in a realized gain of $431 thousand.

Income Taxes

We believe that we have been organized and have operated in conformity with the requirements for qualification and taxation as a REIT commencing with our taxable year ended December 31, 2016, and we intend to continue to operate in a manner that will enable us to maintain our qualification as a REIT. So long as we qualify as a REIT, we generally will not be subject to federal income tax on our net income that we distribute currently to our shareholders. To maintain our qualification as a REIT, we are required under the Code to distribute at least 90% of our REIT taxable income (without regard to the deduction for dividends paid and excluding net capital gains) to our shareholders and meet certain other requirements. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate rates. Even if we qualify as a REIT, we may also be subject to certain state, local and franchise taxes. Under certain circumstances, federal income and excise taxes may be due on our undistributed taxable income.

The Kerrow Restaurant Operating Business is a TRS and is taxed as a C corporation.

See Note 9 - Income Taxes for additional information.

Earnings Per Share

Basic earnings per share (“EPS”) are computed by dividing net income allocated to common shareholders by the weighted-average number of common shares outstanding for the reporting period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. No effect is shown for any securities that are anti-dilutive. Net income allocated to common shareholders represents net income less income allocated to participating securities and non-controlling interests. None of the Company’s equity awards are participating securities.

See Note 10 - Equity for additional information.

Noncontrolling Interest

Noncontrolling interest represents the aggregate limited partnership interests in FCPT OP held by third parties. In accordance with GAAP, the noncontrolling interest of FCPT OP is shown as a component of equity on our Consolidated Balance Sheets, and the portion of income allocable to third parties is shown as net income attributable to noncontrolling interests in our Income Statements and Consolidated Statements of Comprehensive Income (Loss) (“Comprehensive Income Statement”). The Company follows the guidance issued by the FASB regarding the classification and measurement of redeemable securities. At FCPT OP’s option, it may satisfy this redemption with cash or by exchanging non-registered shares of FCPT common stock on a one-for-one basis. Accordingly, the Company has determined that the common OP units meet the requirements to be classified as permanent equity. A reconciliation of equity attributable to noncontrolling interest is disclosed in our Consolidated Statements of Changes in Equity.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

See Note 10 - Equity for additional information.

Stock-Based Compensation

The Company’s stock-based compensation plan provides for the grant of restricted stock awards (“RSAs”), deferred stock units (“DSUs”), performance-based awards, including performance stock units (“PSUs”), dividend equivalents (“DEUs”), restricted stock units (“RSUs”), and other types of awards to eligible participants. DEUs are earned during the vesting period and received upon vesting of award. Upon forfeiture of an award, DEUs earned during the vesting period are also forfeited. We classify stock-based payment awards either as equity awards or liability awards based upon cash settlement options. Equity classified awards are measured based on the fair value on the date of grant. Liability classified awards are remeasured to fair value each reporting period. We recognize costs resulting from the Company’s stock-based compensation awards on a straight-line basis over their vesting periods, which range between one and five years. No compensation cost is recognized for awards for which employees do not render the requisite services.

See Note 11 - Stock-Based Compensation for additional information.

Fair Value of Financial Instruments

We use a fair value approach to value certain assets and liabilities. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. We use a fair value hierarchy, which distinguishes between assumptions based on market data (observable inputs) and an entity's own assumptions (unobservable inputs). The hierarchy consists of three levels:

•Level 1 - Quoted market prices in active markets for identical assets or liabilities;

•Level 2 - Inputs other than level one inputs that are either directly or indirectly observable; and

•Level 3 - Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use.

Application of New Accounting Standards

We consider the applicability and impact of all ASUs issued by the FASB. Other than as disclosed below, ASUs not yet adopted were assessed and determined to be either not applicable or are expected to have minimal impact to our consolidated result of operations, financial position and cash flows.

In the first quarter of 2020 the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2020-04 Reference Rate Reform (Topic 848). ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. During the first quarter of 2020 the Company elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.

On March 5, 2021, the Financial Conduct Authority (“FCA”) announced that U.S. dollar LIBOR will no longer be published after June 30, 2023. This announcement has several implications, including setting the spread that may be used to automatically convert contracts from LIBOR to SOFR. Additionally, banking regulators encouraged banks to discontinue new LIBOR debt issuances by December 31, 2021.

The Company anticipates that LIBOR will continue to be available at least until June 30, 2023. Any changes adopted by the FCA or other governing bodies in the method used for determining LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR. If that were to occur, our interest payments could change. In addition, uncertainty about the extent and manner of future changes may result in interest rates and/or payments that are higher or lower than if LIBOR were to remain available in its current form.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

At September 30, 2022, the Company had three currently effective interest rate swaps with a total notional amount of $350 million that were indexed to LIBOR. These interest rate swaps mature through 2025, and the Company is monitoring and evaluating the related risks, which include interest on loans or amounts received and paid on derivative instruments. These risks arise in connection with transitioning contracts to an alternative rate, including any resulting value transfer that may occur, and are likely to vary by contract. The value of loans, securities, or derivative instruments tied to LIBOR, as well as interest rates on our current or future indebtedness, may also be impacted if LIBOR is limited or discontinued. For some instruments the method of transitioning to an alternative reference rate may be challenging, especially if we cannot agree with the respective counterparty about how to make the transition.

While we expect LIBOR to be available in substantially its current form until at least the end of June 30, 2023, it is possible that LIBOR will become unavailable prior to that point. This could result, for example, if sufficient banks decline to make submissions to the LIBOR administrator. In that case, the risks associated with the transition to an alternative reference rate will be accelerated and magnified.

NOTE 3 – CONCENTRATION OF CREDIT RISK

Our tenant base and the restaurant and retail brands operating our properties are highly concentrated. With respect to our tenant base, Darden leases represent approximately 56.2% of the scheduled base rents from the properties we own. As our revenues predominately consist of rental payments, we are dependent on Darden for a significant portion of our leasing revenues. The audited and unaudited financial statements for Darden are included in its filings with the SEC, which can be found on the SEC’s internet website at www.sec.gov. Reference to Darden’s filings with the SEC is solely for the information of investors. We do not intend this website to be an active link or to otherwise incorporate the information contained on such website (including Darden’s filings with the SEC) into this report or our other filings with the SEC.

We also are subject to concentration risk in terms of the restaurant and retail brands that operate our properties. As of September 30, 2022, we had 312 Olive Garden branded locations in our portfolio, which comprise approximately 31.3% of our leased properties and approximately 42.0% of the revenues received under leases. Longhorn Steakhouse branded restaurants comprise approximately 11.5% of our leased properties and approximately 11.9% of the revenues received under leases as of September 30, 2022. Our properties, including the Kerrow Restaurant Operating Business, are located in 47 states, with concentrations of 10% or greater of total rental revenue in one state: Texas (approximately 10.8%).

We are exposed to credit risk with respect to cash held at various financial institutions, access to our credit facility, and amounts due or payable under our derivative contracts. At September 30, 2022, our exposure to risk related to amounts due to us on our derivative instruments totaled $36.4 million, and the counterparty to such instruments are investment grade financial institutions. Our credit risk exposure with regard to our cash and the $250.0 million available capacity under the revolver portion of our credit facility is spread among a diversified group of investment grade financial institutions.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

NOTE 4 – REAL ESTATE INVESTMENTS, NET AND INTANGIBLE ASSETS AND LIABILITIES, NET

Real Estate Investments, Net

Real estate investments, net, which consist of land, buildings and improvements leased to others subject to net operating leases and those utilized in the operations of Kerrow Restaurant Operating Business are summarized as follows:


	September 30,		December 31,
(In thousands)	2022		2021
Land	$	1,056,228	$	966,565
Buildings and improvements	1,355,430		1,302,114
Equipment	135,299		135,726
Total gross real estate investments	2,546,957		2,404,405
Less: Accumulated depreciation	(700,499)		(682,430)
Total real estate investments, net	1,846,458		1,721,975
Intangible lease assets, net	106,947		104,251
Total Real Estate Investments and Intangible Lease Assets, Net	$	1,953,405	$	1,826,226

During the nine months ended September 30, 2022, the Company invested $171.8 million, including transaction costs, in 70 properties located in twenty-five states, and allocated the investment as follows: $94.5 million to land, $63.0 million to buildings and improvements, $0.2 million to equipment, and $14.1 million to intangible assets. There was no contingent consideration associated with these acquisitions. These properties are 100% occupied under net leases, with a weighted average remaining lease term of 7.5 years as of September 30, 2022. During the nine months ended September 30, 2022, the Company sold seven properties with a combined net book value of $12.4 million for a realized gain of $7.6 million.

During the nine months ended September 30, 2021, the Company invested $195.1 million, including transaction costs, in 89 properties located in twenty-five states, and allocated the investment as follows: $97.9 million to land, $82.4 million to buildings and improvements, $0.9 million to equipment, and $13.9 million to intangible assets. There was no contingent consideration associated with these acquisitions. These properties were 100% occupied under net leases, with a weighted average remaining lease term of 9.3 years as of September 30, 2021. During the nine months ended September 30, 2021, the Company sold two properties with a combined net book value of $2.8 million for a realized gain on sale of $431 thousand.

During the nine months ended September 30, 2021, the Company exercised its option to purchase one of the properties where the Company was the lessee under the ground lease. This lease was previously accounted for as a finance lease. This purchase resulted in an increase in land and a corresponding decrease in finance lease right-of-use assets of $1.2 million.

Intangible Lease Assets and Liabilities, Net

Acquired in-place lease intangibles are amortized over the remaining lease term as depreciation and amortization expense. Above-market and below-market leases are amortized over the initial term of the respective leases as an adjustment to rental revenue. Lease incentives are amortized over the initial term of the respective leases as an adjustment to rental revenue. Intangible lease liabilities are included in Other liabilities in our Consolidated Balance Sheets.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

The following tables detail intangible lease assets and liabilities.


	September 30,		December 31,
(In thousands)	2022		2021
Acquired in-place lease intangibles	$	97,774	$	83,892
Above-market leases	13,821		13,821
Finance leases - right of use asset (1)	24,383		24,383
Lease incentives	7,061		7,061
Direct lease costs	153		87
Total	143,192		129,244
Less: Accumulated amortization	(36,245)		(24,993)
Intangible Lease Assets, Net	$	106,947	$	104,251

(1) See Note 5 - Leases for additional information on finance leases - right of use assets.


	September 30,		December 31,
(In thousands)	2022		2021
Below-market leases	$	2,610	$	2,978
Less: Accumulated amortization	(1,090)		(1,038)
Intangible Lease Liabilities, Net	$	1,520	$	1,940

The value of acquired in-place leases amortized and included in depreciation and amortization expense was $3.4 million and $2.5 million for the three months ended September 30, 2022 and 2021, respectively, and $9.5 million and $6.9 million for the nine months ended September 30, 2022 and 2021, respectively. The value of above-market and below-market leases amortized as an adjustment to revenue was $402 thousand and $405 thousand for the three months ended September 30, 2022 and 2021, respectively, and $1.2 million and $1.2 million for the nine months ended September 30, 2022 and 2021, respectively. For the three months ended September 30, 2022 and 2021, lease incentive amortization was $136 thousand and $81 thousand, respectively, and $407 thousand and $242 thousand for the nine months ended September 30, 2022 and 2021, respectively.

At September 30, 2022, the total weighted average amortization period remaining for our intangible lease assets and liabilities was 8.3 years, and the individual weighted average amortization period remaining for acquired in-place lease intangibles, above-market leases, below-market leases and lease incentives was 8.0 years, 7.2 years, 10.2 years and 13.2 years, respectively.

Amortization of Lease Intangibles

The following table presents the estimated impact during the next five years and thereafter related to the amortization of in-place lease intangibles, and above-market and below-market lease intangibles for properties held for investment at September 30, 2022.



(In thousands)	September 30,
2022 (three months)	$	3,989
2023	13,658
2024	11,800
2025	9,952
2026	8,701
Thereafter	26,809
Total Future Amortization	$	74,909

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

NOTE 5 – LEASES

Operating Leases as Lessee

As a lessee we record ROU assets and lease liabilities for the two ground leases at our Kerrow Restaurant Operating Business and a corporate office space, both of which qualified as operating leases. In calculating the lease obligations under both the ground leases and office lease, we used discount rates estimated to be equal to what the Company would have to pay to borrow on a collateralized basis over a similar term, for an amount equal to the lease payments, in a similar economic environment.

Operating Lease Liability

As of September 30, 2022, maturities of operating lease liabilities were as follows:


(In thousands)	September 30,
2022 (three months)	$	175
2023	705
2024	718
2025	470
2026	310
Thereafter	5,072
Total Payments	7,450
Less: Interest	(2,187)
Operating Lease Liability	$	5,263

The weighted-average discount rate for operating leases at September 30, 2022 was 4.21%. The weighted-average remaining lease term was 16.2 years.

Rental expense was $218 thousand and $218 thousand for the three months ended September 30, 2022 and 2021, respectively. Rental expense was $671 thousand and $667 thousand for the nine months ended September 30, 2022 and 2021, respectively.

Operating Leases as Lessor

Our leases consist primarily of single-tenant, net leases, in which the tenants are responsible for making payments to third parties for operating expenses such as property taxes, insurance, and other costs associated with the properties leased to them. In leases where costs are paid by the Company and reimbursed by lessees, such payments are considered variable lease payments and recognized in rental revenue.

The following table shows the components of rental revenue for the three and nine months ended September 30, 2022 and 2021.


	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2022		2021		2022		2021
Lease revenue - operating leases	$	47,188	$	42,623	138,678		124,599
Variable lease revenue (tenant reimbursements)	1,531		1,050		4,848		2,751
Total Rental Revenue	$	48,719	$	43,673	$	143,526	$	127,350

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Future Minimum Lease Payments to be Received

The following table presents the scheduled minimum future contractual rent to be received under the remaining non-cancelable term of the operating leases. The table presents future minimum lease payments due during the initial lease term only as lease renewal periods are exercisable at the option of the lessee.


(In thousands)	September 30,
2022 (three months)	$	46,497
2023	187,213
2024	186,998
2025	185,534
2026	184,608
Thereafter	949,846
Total Future Minimum Lease Payments	$	1,740,696

Ground Leases as Lessee

As of September 30, 2022 and December 31, 2021, the Company had finance ground lease assets aggregating $24.4 million. These assets are included in intangible lease assets, net in the Consolidated Balance Sheets. The Company did not recognize a lease liability as no payments are due in the future under the leases. The Company’s ground lease assets have remaining lease terms ranging from 61 years to 97 years, with options to extend certain of the lease terms for additional ninety-nine year terms, and the option to purchase the assets. The weighted average remaining non-cancelable lease term for the ground leases was 93.8 years at September 30, 2022.

NOTE 6 – LONG-TERM DEBT, NET OF DEFERRED FINANCING COSTS

At September 30, 2022, our long-term debt consisted of (1) $400 million of non-amortizing term loans and (2) $575 million of senior, unsecured, fixed rate notes. At December 31, 2021, our long-term debt consisted of (1) $400 million of non-amortizing term loans and (2) $450 million of senior, unsecured, fixed rate notes. At September 30, 2022 and December 31, 2021, the outstanding borrowings under the revolving credit facility were $0 million and $36 million, respectively, and there were no outstanding letters of credit. At September 30, 2022, we had $250 million of borrowing capacity under the revolving credit facility. The revolving credit facility portion will mature on November 9, 2025 with a six month extension option. The weighted average interest rate on the term loans before consideration of the interest rate hedge described in Note 7 - Derivative Financial Instruments was 3.70% and 1.38% at September 30, 2022 and December 31, 2021, respectively. The weighted average interest rate on the revolving credit facility was 1.40% at December 31, 2021.

The following table presents the Term Loan balances as of September 30, 2022 and December 31, 2021.


				Outstanding Balance
	Maturity	Interest		September 30,		December 31,
(Dollars in thousands)	Date	Rate		2022		2021
Term Loans:
Term loan due 2023	Nov 2023	3.70%	(a)	50,000		50,000
Term loan due 2024	Mar 2024	3.70%	(a)	100,000		100,000
Term loan due 2025	Nov 2025	3.70%	(a)	150,000		150,000
Term loan due 2026	Nov 2026	3.70%	(a)	100,000		100,000
Total Term Loans				$	400,000	$	400,000
(a) Loan is a variable‑rate loan which resets monthly at one-month LIBOR + the applicable credit spread of 1.00% at September 30, 2022.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Note Purchase Agreement

On December 17, 2021, the Company entered into agreements to issue $125 million of senior unsecured notes. The notes consist of $75 million of notes with a ten-year term, which were issued on March 17, 2022 and mature on March 17, 2032, and priced at a fixed interest rate of 3.11%, and $50 million of notes with a nine-year term, which were issued on March 17, 2022, and mature on March 17, 2031, and priced at a fixed interest rate of 3.09%. These notes were issued at par value.

The following table presents the senior unsecured fixed rate notes balance as of September 30, 2022 and December 31, 2021.


				Outstanding Balance
	Maturity	Interest		September 30,		December 31,
(Dollars in thousands)	Date	Rate		2022		2021
Notes Payable:
Senior unsecured fixed rate note, issued June 2017	Jun 2024	4.68	%	$	50,000	$	50,000
Senior unsecured fixed rate note, issued June 2017	Jun 2027	4.93	%	75,000		75,000
Senior unsecured fixed rate note, issued December 2018	Dec 2026	4.63	%	50,000		50,000
Senior unsecured fixed rate note, issued December 2018	Dec 2028	4.76	%	50,000		50,000
Senior unsecured fixed rate note, issued March 2020	Jun 2029	3.15	%	50,000		50,000
Senior unsecured fixed rate note, issued March 2020	Apr 2030	3.20	%	75,000		75,000
Senior unsecured fixed rate note, issued April 2021	Apr 2029	2.74	%	50,000		50,000
Senior unsecured fixed rate note, issued April 2021	Apr 2031	2.99	%	50,000		50,000
Senior unsecured fixed rate note, issued March 2022	Mar 2031	3.09	%	50,000		—
Senior unsecured fixed rate note, issued March 2022	Mar 2032	3.11	%	75,000		—
Total Notes				$	575,000	$	450,000

Deferred Financing Costs

At September 30, 2022 and December 31, 2021, net unamortized deferred financing costs were approximately $8.0 million and $8.4 million, respectively. During the three months ended September 30, 2022 and 2021, amortization of deferred financing costs was $496 thousand and $468 thousand, respectively. During the nine months ended September 30, 2022 and 2021, amortization of deferred financing costs was $1.5 million and $1.9 million, respectively. The amortization of deferred financing costs for the nine months ended September 30, 2021 includes a one-time charge of $364 thousand for deferred financing costs expensed as a result of the execution of an amendment to the term loan agreement on June 4, 2021.

The Company was in compliance with all debt covenants at September 30, 2022 and December 31, 2021.

NOTE 7 – DERIVATIVE FINANCIAL INSTRUMENTS

Risk Management Objective of Using Derivatives

We are exposed to certain risks arising from both our business operations and economic conditions. We principally manage our exposures to a wide variety of business and operational risks through management of our core business activities. We manage economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of our debt funding and the use of derivative financial instruments. Specifically, we enter into derivative financial instruments to manage exposures that arise from business activities that result in our receipt or payment of future cash amounts, the value of which are determined by interest rates. Our derivative financial instruments are used to manage differences in the amount, timing, and duration of our known or expected cash payments principally related to our borrowings.

Cash Flow Hedges of Interest Rate Risk

Our objectives in using interest rate derivatives are to add stability to interest expense and to manage our exposure to interest rate movements. To accomplish these objectives, we primarily use interest rate swaps as part of our interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

counterparty in exchange for us making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. The change in the fair value of derivatives designated and that qualify as cash flow hedges is recorded on our consolidated balance sheet in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the nine months ended September 30, 2022 and 2021, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt.

As of September 30, 2022 and December 31, 2021, $350 million of our variable-rate debt is hedged by swaps with notional values totaling $350 million.

During the nine months ended September 30, 2022, we entered into two interest rate swaps to hedge the interest rate variability associated with the term loan portion of our credit facility.

The Company enters into forward-starting interest rate swap agreements to hedge against changes in future cash flows resulting from changes in interest rates from the trade date through the forecasted issuance date of long-term debt. The Company has hedged its exposure to the variability in future cash flows for a forecasted issuance of long-term debt over a maximum period ending August 17, 2023. As of September 30, 2022, these interest rate swaps were valued as an asset of approximately $7.1 million within derivative assets.

Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on our variable-rate debt. We estimate that over the next twelve months an additional $7.7 million will be reclassified to earnings as a reduction to interest expense.

Non-designated Hedges

We do not use derivatives for trading or speculative purposes. During the nine months ended September 30, 2022 and 2021, we did not have any derivatives that were not designated as cash flow hedges for accounting purposes.

Tabular Disclosure of Fair Values of Derivative Instruments on the Consolidated Balance Sheets

The table below presents the fair value of our derivative financial instruments as well as their classification on the consolidated balance sheet as of September 30, 2022 and December 31, 2021.


	Derivative Assets					Derivative Liabilities
	Balance Sheet Location	Fair Value at				Balance Sheet Location	Fair Value at
(Dollars in thousands)		September 30, 2022		December 31, 2021			September 30, 2022		December 31, 2021
Derivatives designated as hedging instruments:
Interest rate swaps	Derivative assets	$	36,448	$	2,591	Derivative liabilities	$	—	$	7,517
Total		$	36,448	$	2,591		$	—	$	7,517

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Tabular Disclosure of the Effect of Derivative Instruments on the Consolidated Statements of Comprehensive Income (Loss)

The table below presents the effect of our interest rate swaps on comprehensive income for the three and nine months ended September 30, 2022 and 2021.


(Dollars in thousands)	Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion)		Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)		Total Amount of Interest Expense Presented in the Consolidated Statements of Income
Three months ended September 30, 2022	$	17,151	Interest expense	$	(104)	$	(9,177)
Three months ended September 30, 2021	1,340		Interest expense	1,748		(8,311)
Nine months ended September 30, 2022	39,151		Interest expense	2,700		(26,583)
Nine months ended September 30, 2021	6,447		Interest expense	5,220		(24,328)

Tabular Disclosure Offsetting Derivatives

The table below presents a gross presentation, the effects of offsetting, and a net presentation of our derivatives at September 30, 2022 and December 31, 2021. The net amounts of derivative assets or liabilities can be reconciled to the tabular disclosure of fair value. The tabular disclosure of fair value provides the location that derivative assets and liabilities are presented on the consolidated balance sheets.


Offsetting of Derivative Assets
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheet		Net Amounts of Assets Presented in the Consolidated Balance Sheet		Gross Amounts Not Offset in the Consolidated Balance Sheet
(In thousands)							Financial Instruments		Cash Collateral Received		Net Amount
September 30, 2022	$	36,448	$	—	$	36,448	$	—	$	—	$	36,448
December 31, 2021	2,591		—		2,591		(1,268)		—		1,323


Offsetting of Derivative Liabilities
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Consolidated Balance Sheet		Net Amounts of Liabilities Presented in the Consolidated Balance Sheet		Gross Amounts Not Offset in the Consolidated Balance Sheet
(In thousands)							Financial Instruments		Cash Collateral Posted		Net Amount
September 30, 2022	$	—	$	—	$	—	$	—	$	—	$	—
December 31, 2021	7,517		—		7,517		(1,268)		—		6,249

Credit-risk-related Contingent Features

The agreement with our derivative counterparty provides that if we default on any of our indebtedness, including default for which repayment of the indebtedness has not been accelerated by the lender, then we could also be declared in default on our derivative obligations.

At September 30, 2022 the fair value of derivatives in a net asset position related to these agreements was $36.4 million and at December 31, 2021 the fair value of derivatives in a net liability position related to these agreements was $4.9 million. As of September 30, 2022, we have not posted any collateral related to these agreements. If we or our counterparty had breached any of these provisions at September 30, 2022, we would have been entitled to the termination value of approximately $36.4 million.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

NOTE 8 – SUPPLEMENTAL DETAIL FOR CERTAIN COMPONENTS OF CONSOLIDATED BALANCE SHEETS

Other Assets

The components of other assets were as follows:


	September 30,		December 31,
(In thousands)	2022		2021
Operating lease right-of-use asset	$	4,552	$	4,919

Prepaid acquisition costs and deposits	3,615		3,049
Accounts receivable	1,749		1,312
Prepaid assets	1,184		1,375
Food and beverage inventories	256		252
Other	1,206		695
Total Other Assets	$	12,562	$	11,602

Other Liabilities

The components of other liabilities were as follows:


	September 30,		December 31,
(In thousands)	2022		2021
Accrued interest expense	$	6,774	$	2,066
Operating lease liability	5,263		5,617
Tenant deposits	4,893		961
Accrued compensation	2,083		2,547
Intangible lease liabilities, net	1,520		1,940
Accrued operating expenses	322		286
Accounts payable	310		550
Other	3,635		2,047
Total Other Liabilities	$	24,800	$	16,014

NOTE 9 – INCOME TAXES

Income tax expense consists of federal, state, and local income taxes incurred by FCPT’s TRS, and state and local income taxes incurred by FCPT on its lease portfolio. During the three months ended September 30, 2022, we recorded income tax benefit of $23 thousand. During the three months ended September 30, 2021, we recorded income tax expense of $97 thousand. During the nine months ended September 30, 2022 and 2021, we recorded income tax expense of $209 thousand and $231 thousand, respectively.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts for income tax purposes, as well as operating loss and tax credit carryforwards. The Company evaluates the realizability of its deferred tax assets and recognizes a valuation allowance if, based on the available evidence, both positive and negative, it is more likely than not that some portion or all of its deferred tax assets will not be realized. When evaluating the realizability of its deferred tax assets, the Company considers, among other matters, estimates of expected future taxable income, nature of current and cumulative losses, existing and projected book/tax differences, tax planning strategies available, and the general and industry specific economic outlook. This realizability analysis

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

is inherently subjective, as it requires the Company to forecast its business and general economic environment in future periods. Based on an assessment of all factors, including three year cumulative income and the projection of future book and taxable income of the Kerrow Restaurants Operating Business, it was determined that the removal of the valuation allowance on the net deferred tax assets was required as of December 31, 2021. During the three and nine months ended September 30, 2022, $118 thousand and $57 thousand, respectively, was recorded as a deferred tax benefit related to the prior year provision to return adjustment and routine book-tax differences within income tax benefit (expense) in the Consolidated Statements of Income.

NOTE 10 – EQUITY

Preferred Stock

At September 30, 2022 and December 31, 2021, the Company was authorized to issue 25,000,000 shares, $0.0001 par value per share of preferred stock. There were no shares issued and outstanding at September 30, 2022 and December 31, 2021.

Common Stock

At September 30, 2022 and December 31, 2021, the Company was authorized to issue 500,000,000 shares, $0.0001 par value per share of common stock. At September 30, 2022, there were 82,822,584 shares of the Company's common stock issued and outstanding.

On March 8, 2022, we declared a dividend of $0.3325 per share, which was paid in April 2022 to common stockholders of record as of March 31, 2022.

On June 16, 2022, we declared a dividend of $0.3325 per share, which was paid in July 2022 to common stockholders of record as of June 30, 2022.

On September 16, 2022, we declared a dividend of $0.3325 per share, which was paid in October 2022 to common stockholders of record as of September 30, 2022.

Common Stock Issuance Under the At-The-Market Program

In December 2016, the Company established an “At-the-Market” (“ATM”) equity issuance program (the “prior ATM program”) under which the Company may, at its discretion, issue and sell its common stock through ATM offerings on the New York Stock Exchange through broker-dealers. On March 22, 2019, the Company amended the prior ATM program to, among other things, increase the maximum sales under ATM offerings to $210 million and provide that such sales could be made through the sales agents, as the Company’s agents or, if applicable, as forward sellers for forward purchasers. On February 24, 2021, the Company terminated the prior ATM program and entered into a new ATM program (the “current ATM program” and together with the prior ATM program, the “ATM programs”), which provides for the offer and sale of the shares of the Company’s common stock having an aggregate gross sales price of up to $350 million. In connection with the Company’s ATM program, the Company may enter into forward sale agreements with certain financial institutions acting as forward purchasers whereby, at the Company's discretion, the forward purchasers may borrow and sell shares of common stock. The use of forward sale agreements allows the Company to lock in a share price on the sale of shares of common stock at the time the respective forward sale agreements are executed but defer settling the forward sale agreements and receiving the proceeds from the sale of shares until a later date.

During the three and nine months ended September 30, 2022, the Company executed forward sale agreements with financial institutions acting as forward purchasers under the current ATM program to sell 1,723,426 and 3,959,433 shares of common stock, respectively, at a weighted average sales price of $28.56 and $27.84 per share, respectively, before sales commissions and offering expenses. During the three months ended September 30, 2022, the Company physically settled a portion of these forward sale agreements and issued 1,190,532 shares at a weighted average share price of $26.52 for net proceeds of $31.6 million. During the nine months ended September 30, 2022, the Company physically settled a portion of these forward sale agreements and issued 1,363,956 shares at a weighted average share price of $26.42 for net proceeds of $36.0 million. The Company currently expects to fully physically settle the remaining forward sale agreements with the forward purchasers on one or more dates specified by the Company on or prior to March 31, 2023, in which case the Company expects to receive aggregate net cash proceeds at settlement equal to the number of shares of common stock multiplied by the relevant forward price per share at such time. The forward price per share that the Company will receive upon physical settlement of the

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

forward sale agreements, will be subject to adjustment for (i) a floating interest rate factor equal to a specified daily rate less a spread, (ii) the forward purchaser's stock borrowing costs and (iii) scheduled dividends during the term of the forward sale agreements.

During the three months ended September 30, 2022, 2,277,782 shares were issued under the current ATM program, including physically settled forward sale agreements, at a weighted average share price of $27.23 for net proceeds of $62.0 million. During the nine months ended September 30, 2022, the Company issued 2,451,206 shares under the current ATM program, including physically settled forward sale agreements, at a weighted average share price of $27.12 for net proceeds of $66.5 million.

During the three months ended September 30, 2021, 1,000,193 shares were issued under the current ATM program at a weighted average share price of $27.67 for net proceeds of $27.1 million. During the nine months ended September 30, 2021, the Company issued 1,161,702 shares under the ATM programs at a weighted average share price of $27.93 for net proceeds of $31.8 million.

At September 30, 2022, there was $93.3 million available for issuance under the current ATM program.

Noncontrolling Interest

At September 30, 2022, there were 114,559 FCPT Operating Partnership Units (“OP units”) outstanding held by third parties. During the three and nine months ended September 30, 2022, FCPT OP did not issue any OP units for consideration in real estate transactions. Generally, OP units participate in net income allocations and distributions and entitle their holder the right, subject to the terms set forth in the partnership agreement, to require FCPT OP to redeem all or a portion of the OP units held by such limited partner. At FCPT OP’s option, it may satisfy this redemption with cash or by exchanging non-registered shares of FCPT common stock on a one-for-one basis. Prior to the redemption of OP units, the limited partners participate in net income allocations and distributions in a manner equivalent to the common stockholders. The redemption value of outstanding non-controlling interest OP units was $2.8 million and $3.4 million as of September 30, 2022 and December 31, 2021, respectively.

At September 30, 2022, FCPT was the owner of approximately 99.86% of FCPT’s OP units. The remaining 0.14%, or 114,559 of FCPT’s OP units were held by unaffiliated limited partners. During the three and nine months ended September 30, 2022, FCPT OP distributed $38 thousand and $114 thousand, respectively, to its unaffiliated limited partners.

Earnings Per Share

The following table presents the computation of basic and diluted net earnings per common share for the three and nine months ended September 30, 2022 and 2021.


(In thousands except for shares and per share data)	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Average common shares outstanding – basic	81,884,974		76,250,614		80,797,829		76,094,133
Net effect of dilutive equity awards	234,473		109,912		213,908		128,034
Average common shares outstanding – diluted	82,119,447		76,360,526		81,011,737		76,222,167
Net income available to common shareholders	$	24,518	$	21,164	$	74,903	$	61,881
Basic net earnings per share	$	0.30	$	0.28	$	0.93	$	0.81
Diluted net earnings per share	$	0.30	$	0.28	$	0.92	$	0.81

For the three months ended September 30, 2022 and 2021, the number of outstanding equity awards that were anti-dilutive totaled 264,186 and 192,151, respectively. For the nine months ended September 30, 2022 and 2021, the number of outstanding equity awards that were anti-dilutive totaled 284,751 and 174,029, respectively.

Exchangeable OP units have been omitted from the denominator for the purpose of computing diluted earnings per share since FCPT OP, at its option, may satisfy a redemption with cash or by exchanging non-registered shares of FCPT common stock. The weighted average exchangeable OP units outstanding for the three months ended September 30, 2022 and 2021 was

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

114,559 and 158,905, respectively. The weighted average exchangeable OP units outstanding for the nine months ended September 30, 2022 and 2021 was 114,559 and 159,228, respectively.

NOTE 11 – STOCK-BASED COMPENSATION

On October 20, 2015, the Board of Directors of FCPT adopted, and FCPT’s sole stockholder at such time, Rare Hospitality International, Inc., approved, the Four Corners Property Trust, Inc. 2015 Omnibus Incentive Plan (the “2015 Plan”). The 2015 Plan provides for the grant of awards of nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, deferred stock units, unrestricted stock, dividend equivalent rights, performance shares and other performance-based awards, other equity-based awards, and cash bonus awards to eligible participants. On June 10, 2022, the Board of Directors of FCPT adopted, and FCPT’s stockholders approved, the Amended and Restated Four Corners Property Trust, Inc. 2015 Omnibus Incentive Plan (the “Amended Plan”) to, among other things, increase the maximum number of shares of our common stock reserved for issuance under the 2015 Plan by 1,500,000 shares to 3,600,000 shares.

At September 30, 2022, 2,009,516 shares of common stock were available for award under the Plan. The unamortized compensation cost of awards issued under the Plan totaled approximately $6.6 million at September 30, 2022 as shown in the following table.


(In thousands)	Restricted Stock Units		Restricted Stock Awards		Performance Stock Awards		Total
Unrecognized compensation cost at January 1, 2022	$	1,820	$	1,728	$	662	$	4,210
Equity grants	2,080		3,225		1,236		6,541
Equity grant forfeitures	(200)		(112)		(56)		(368)
Equity compensation expense	(1,097)		(1,890)		(752)		(3,739)
Unrecognized Compensation Cost at September 30, 2022	$	2,603	$	2,951	$	1,090	$	6,644

At September 30, 2022, the weighted average amortization period remaining for all of our equity awards was 2.2 years.

Restricted Stock Units

RSUs have been granted at a value equal to the five-day average or day of closing market price of our common stock on the date of grant, and will be settled in stock at the end of their vesting periods, which range between one and five years.

At September 30, 2022 and December 31, 2021, there were 218,060 and 159,524 RSUs outstanding, respectively. During the three months ended September 30, 2022, there were 816 shares of restricted stock granted, 816 RSUs vested, and no RSUs were forfeited. During the nine months ended September 30, 2022, there were 77,424 shares of restricted stock granted, 11,361 RSUs vested, and 7,527 RSUs were forfeited. Restrictions on these RSUs lapse through 2027.

Restricted Stock Awards

RSAs have been granted at a value equal to the five-day average closing market price of our common stock on the date of grant and will be settled in stock at the end of their vesting periods, which range between one and three years.

At September 30, 2022 and December 31, 2021, there were 157,023 and 113,695 RSAs outstanding, respectively. During the three months ended September 30, 2022, no shares of restricted stock were granted or forfeited, and no restrictions on RSAs lapsed. During the nine months ended September 30, 2022, there were 119,471 shares of restricted stock granted, 4,035 shares forfeited, and restrictions on 72,105 RSAs lapsed and were distributed, of which 38,082 RSAs were designated for tax withholdings. Restrictions on these RSAs lapse through 2025. The Company expects all RSAs to vest.

Performance-Based Restricted Stock Awards

At September 30, 2022 and December 31, 2021, the target number of PSUs that were unvested was 202,560 and 208,481, respectively. During the three months ended September 30, 2022, no PSU shares were granted or vested and no shares were forfeited. During the nine months ended September 30, 2022, PSUs with a target number of 66,369 shares were granted and PSUs with a target number of 68,523 shares vested and 3,767 shares forfeited. The total shareholder return calculated for these PSUs resulted in a distribution of 0% of target shares, resulting in the distribution of no shares.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

The performance period of the unvested grants run from January 1, 2022 through December 31, 2024, from January 1, 2021 through December 31, 2023, and from January 1, 2020 through December 31, 2022. Pursuant to the PSU award agreement, each participant is eligible to vest in and receive shares of the Company's common stock based on the initial target number of shares granted multiplied by a percentage range between 0% and 200%. The percentage range is based on the attainment of a combination of relative shareholder return and total shareholder return of the Company compared to certain specified peer groups of companies during the performance period. The grant date fair values of PSUs were determined through Monte-Carlo simulations using the following assumptions: our common stock closing price at the grant date, the average closing price of our common stock price for the 20 trading days prior to the grant date and a range of performance-based vesting based on estimated total stockholder return over a three year performance period. For the 2022 PSU grant, the Company used an implied volatility assumption of 49.5% (based on historical volatility), normalized risk free rate of 2.50%, and a 0% dividend yield (the mathematical equivalent to reinvesting the dividends over the three-year performance period as is consistent with the terms of the PSUs), which resulted in a grant date fair value of $1.2 million.

Based on the grant date fair value, the Company expects to recognize $1.1 million in compensation expense on a straight-line basis over the remaining requisite service period associated with the unvested PSU awards.

NOTE 12 – FAIR VALUE MEASUREMENTS

The carrying amounts of certain of the Company’s financial instruments including cash equivalents, accounts receivable, accounts payable, and accrued liabilities approximate fair value due either to length of maturity or interest rates that approximate prevailing market rates. The carrying value of derivative financial instruments equal fair value in accordance with U.S. GAAP. Determining which category an asset or liability falls within the hierarchy requires significant judgment. We evaluate hierarchy disclosures each reporting period.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table presents the assets and liabilities recorded that are reported at fair value on our Consolidated Balance Sheets on a recurring basis.


September 30, 2022
(In thousands)	Level 1	Level 2	Level 3	Total
Assets
Derivative assets	$—	$36,448	$—	$36,448
Liabilities
Derivative liabilities	$—	$—	$—	$—


December 31, 2021
(In thousands)	Level 1	Level 2	Level 3	Total
Assets
Derivative assets	$—	$2,591	$—	$2,591
Liabilities
Derivative liabilities	$—	$7,517	$—	$7,517

Derivative Financial Instruments

Currently, we use interest rate swaps to manage our interest rate risk associated with our notes payable. The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

The fair values of interest rate options are determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rise above the strike rate of the caps. The variable interest rates used in the calculation of projected receipts on the cap are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities.

To comply with the provisions of ASC 820, we incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees.

Although we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by ourselves and our counterparties. We have determined that the significance of the impact of the credit valuation adjustments made to our derivative contracts, which determination was based on the fair value of each individual contract, was not significant to the overall valuation. As a result, all of our derivatives held at September 30, 2022, and December 31, 2021 were classified as Level 2 of the fair value hierarchy.

Fair Value of Certain Financial Liabilities

The following table presents the carrying value and fair value of certain financial liabilities that are recorded on our Consolidated Balance Sheets. The fair value of the long-term debt (Level 2) is determined using the present value of the contractual cash flows, discounted at the current market cost of debt.


	September 30, 2022
(In thousands)	Carrying Value(1)		Fair Value
Term loan due 2023	$	50,000	$	49,875
Term loan due 2024	100,000		99,750
Term loan due 2025	150,000		149,734
Term loan due 2026	100,000		99,606
Senior fixed note due June 2024	50,000		49,994
Senior fixed note due June 2026	50,000		48,819
Senior fixed note due June 2027	75,000		73,955
Senior fixed note due June 2028	50,000		48,504
Senior fixed note due April 2029	50,000		43,133
Senior fixed note due June 2029	50,000		43,950
Senior fixed note due April 2030	75,000		65,163
Senior fixed note due March 2031	50,000		41,688
Senior fixed note due April 2031	50,000		42,267
Senior fixed note due March 2032	75,000		62,385
Revolving credit facility	—		—

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)


	December 31, 2021
(In thousands)	Carrying Value(1)		Fair Value
Term loan due 2023	$	50,000	$	50,237
Term loan due 2024	100,000		100,474
Term loan due 2025	150,000		151,702
Term loan due 2026	100,000		101,262
Senior fixed note due June 2024	50,000		53,482
Senior fixed note due June 2026	50,000		55,468
Senior fixed note due June 2027	75,000		84,593
Senior fixed note due June 2028	50,000		56,952
Senior fixed note due April 2029	50,000		50,965
Senior fixed note due June 2029	50,000		52,045
Senior fixed note due April 2030	75,000		78,246
Senior fixed note due April 2031	50,000		51,584
Revolving credit facility	36,000		36,220

(1) Carrying values exclude deferred financing costs

NOTE 13 – COMMITMENTS AND CONTINGENCIES

Litigation

We are subject to private lawsuits, administrative proceedings and claims that arise in the ordinary course of our business from time to time. A number of these lawsuits, proceedings and claims may exist at any given time. These matters typically involve claims from guests, employee wage and hour claims and others related to operational issues common to the restaurant industry. We record our best estimate of a loss when the loss is considered probable. When a liability is probable and there is a range of estimated loss with no best estimate in the range, we record the minimum estimated liability related to the lawsuits, proceedings or claims. While the resolution of a lawsuit, proceeding or claim may have an impact on our financial results for the period in which it is resolved, we believe that the maximum liability related to probable lawsuits, proceedings and claims in which we are currently involved, individually and in the aggregate, will not have a material adverse effect on our financial position, results of operations or liquidity.

NOTE 14 – SEGMENTS

During the three and nine months ended September 30, 2022 and 2021, we operated in two segments: real estate operations and restaurant operations. Our segments are based on our organizational and management structure, which aligns with how our results are monitored and performance is assessed. Expenses incurred at our corporate office are allocated to real estate operations. The accounting policies of the reportable segments are the same as those described in Note 2 - Summary of Significant Accounting Policies.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

The following tables present financial information by segment for the three and nine months ended September 30, 2022 and 2021.

Three Months Ended September 30, 2022


(In thousands)	Real Estate Operations		Restaurant Operations		Intercompany		Total
Revenues:
Rental revenue	$	48,719	$	—	$	—	$	48,719
Intercompany rental revenue	211		—		(211)		—
Restaurant revenue	—		7,289		—		7,289
Total revenues	48,930		7,289		(211)		56,008
Operating expenses:
General and administrative	4,917		—		—		4,917
Depreciation and amortization	10,408		180		—		10,588
Property expenses	1,999		—		—		1,999
Restaurant expenses	—		7,001		(211)		6,790
Total operating expenses	17,324		7,181		(211)		24,294
Interest expense	(9,177)		—		—		(9,177)
Other income	164		—		—		164
Realized gain on sale	1,828		—		—		1,828
Income tax benefit (expense)	(54)		77		—		23
Net Income	$	24,367	$	185	$	—	$	24,552

Three Months Ended September 30, 2021


(In thousands)	Real Estate Operations		Restaurant Operations		Intercompany		Total
Revenues:
Rental revenue	$	43,673	$	—	$	—	$	43,673
Intercompany rental revenue	209		—		(209)		—
Restaurant revenue	—		7,033		—		7,033
Total revenues	43,882		7,033		(209)		50,706
Operating expenses:
General and administrative	4,262		—		—		4,262
Depreciation and amortization	8,447		384		—		8,831
Property expenses	1,453		—		—		1,453
Restaurant expenses	—		6,755		(209)		6,546
Total operating expenses	14,162		7,139		(209)		21,092
Interest expense	(8,311)		—		—		(8,311)
Other income	2		—		—		2
Realized gain on sale	—		—		—		—
Income tax expense	(46)		(51)		—		(97)
Net Income (Loss)	$	21,365	$	(157)	$	—	$	21,208

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Nine Months Ended September 30, 2022


(In thousands)	Real Estate Operations		Restaurant Operations		Intercompany		Total
Revenues:
Rental revenue	$	143,526	$	—	$	—	$	143,526
Intercompany rental revenue	633		—		(633)		—
Restaurant revenue	—		22,304		—		22,304
Total revenues	144,159		22,304		(633)		165,830
Operating expenses:
General and administrative	14,884		—		—		14,884
Depreciation and amortization	29,878		542		—		30,420
Property expenses	5,835		—		—		5,835
Restaurant expenses	—		21,358		(633)		20,725
Total operating expenses	50,597		21,900		(633)		71,864
Interest expense	(26,583)		—		—		(26,583)
Other income	250		—		—		250
Realized gain on sale	7,584		—		—		7,584
Income tax expense	(146)		(63)		—		(209)
Net Income	$	74,667	$	341	$	—	$	75,008

Nine Months Ended September 30, 2021


(In thousands)	Real Estate Operations		Restaurant Operations		Intercompany		Total
Revenues:
Rental revenue	$	127,350	$	—	$	—	$	127,350
Intercompany rental revenue	533		—		(533)		—
Restaurant revenue	—		19,374		—		19,374
Total revenues	127,883		19,374		(533)		146,724
Operating expenses:
General and administrative	13,490		—		—		13,490
Depreciation and amortization	25,071		384		—		25,455
Property expenses	3,657		—		—		3,657
Restaurant expenses	—		18,527		(533)		17,994
Total operating expenses	42,218		18,911		(533)		60,596
Interest expense	(24,328)		—		—		(24,328)
Other income	10		—		—		10
Realized gain on sale	431		—		—		431
Income tax expense	(128)		(103)		—		(231)
Net Income	$	61,650	$	360	$	—	$	62,010

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

The following tables present supplemental information by segment at September 30, 2022 and December 31, 2021.

Supplemental Segment Information at September 30, 2022


(In thousands)	Real Estate Operations		Restaurant Operations		Total
Total real estate investments	$	2,524,709	$	22,248	$	2,546,957
Accumulated depreciation	(693,861)		(6,638)		(700,499)
Total real estate investments, net	1,830,848		15,610		1,846,458
Cash and cash equivalents	35,368		1,301		36,669
Total assets	2,077,650		22,227		2,099,877
Long-term debt, net of deferred financing costs	966,989		—		966,989

Supplemental Segment Information at December 31, 2021


(In thousands)	Real Estate Operations		Restaurant Operations		Total
Total real estate investments	$	2,382,169	$	22,236	$	2,404,405
Accumulated depreciation	(676,183)		(6,247)		(682,430)
Total real estate investments, net	1,705,986		15,989		1,721,975
Cash and cash equivalents	4,830		1,470		6,300
Total assets	1,880,192		22,788		1,902,980
Long-term debt, net of deferred financing costs	877,591		—		877,591

NOTE 15 – SUBSEQUENT EVENTS

The Company reviewed its subsequent events and transactions that have occurred after September 30, 2022, the date of the Consolidated Balance Sheet, through November 2, 2022, and noted the following:

Acquisitions

Through November 2, 2022, the Company invested $16.0 million in the acquisition of eight net lease properties with an investment yield of approximately 6.9%, and approximately 7.2 years of lease term remaining. The Company funded the acquisitions with cash on hand and ATM forward settlements. The Company anticipates accounting for these transactions as asset acquisitions in accordance with U.S. GAAP. There were no contingent liabilities associated with these transactions at September 30, 2022.

Capital Resources

Through November 2, 2022, the Company physically settled a portion of the forward sale agreements that were outstanding on the current ATM program and issued 1,052,051 shares for net proceeds of $28.0 million.

On October 25, 2022, the Company entered into a Third Amended and Restated Revolving Credit and Term Loan Agreement (the “Loan Agreement”). The Loan Agreement provides for a revolving credit facility in an aggregate principal amount of $250.0 million (the “Revolving Credit Facility”) and a term loan facility in an aggregate principal amount of $430.0 million, comprised of (i) a $150.0 million term credit facility with a maturity date of November 9, 2025, (ii) a $100.0 million term credit facility with a maturity date of November 9, 2026, (iii) a $90.0 million term credit facility with a maturity date of January 9, 2027 and (iv) a $90.0 million term credit facility with a maturity date of January 9, 2028. The Loan Agreement has an accordion feature to increase the revolving commitments or add one or more tranches of term loans up to an additional aggregate amount not to exceed $350.0 million, subject to certain conditions, including one or more new or existing lenders agreeing to provide commitments for such increased amount. The amendment converts the credit facility from LIBOR to SOFR-based borrowings, and the Company and counterparties converted the related interest rate swaps concurrently.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

Statements contained in this Quarterly Report on Form 10-Q, including the documents that are incorporated by reference, that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). Also, when Four Corners Property Trust, Inc. (the “Company”) uses any of the words “anticipate,” “assume,” “believe,” “estimate,” “expect,” “intend,” or similar expressions, Four Corners Property Trust, Inc. is making forward-looking statements. Although management believes that the expectations reflected in such forward-looking statements are based upon present expectations and reasonable assumptions, actual results could differ materially from those set forth in the forward-looking statements. Certain factors that could cause actual results or events to differ materially from those anticipated or projected are described in the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, as such factors may be updated from time to time in our periodic filings with the Securities and Exchange Commission.

Given these uncertainties, readers are cautioned not to place undue reliance on such statements, which speak only as of the date of this Quarterly Report on Form 10-Q or any document incorporated herein by reference. Four Corners Property Trust, Inc. undertakes no obligation to publicly release any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q.

The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes included in the Annual Report on Form 10-K of Four Corners Property Trust, Inc. for the year ended December 31, 2021. Any references to “FCPT,” “the Company,” “we,” “us,” or “our” refer to Four Corners Property Trust, Inc. as an independent, publicly traded, self-administered company.

Overview

We are a Maryland corporation and a real estate investment trust (“REIT”) which owns, acquires and leases properties for use in the restaurant and retail industries. Substantially all of our business is conducted through Four Corners Operating Partnership, LP (“FCPT OP”), a Delaware limited partnership of which we are a majority limited partner and our wholly owned subsidiary, Four Corners GP, LLC (“FCPT GP”), is its sole general partner. We believe that we have operated in conformity with the requirements for qualification and taxation as a REIT for the taxable year ended December 31, 2021, and we intend to continue to operate in a manner that will enable us to maintain our qualification as a REIT.

Our revenues are primarily generated by leasing properties to tenants through net lease arrangements under which the tenants are primarily responsible for ongoing costs relating to the properties, including utilities, property taxes, insurance, common area maintenance charges, and maintenance and repair costs. We focus on income producing properties leased to high quality tenants in major markets across the United States. We also generate revenues by operating seven LongHorn Steakhouse restaurants located in the San Antonio, Texas area (the “Kerrow Restaurant Operating Business”) pursuant to franchise agreements with Darden.

In addition to managing our existing properties, our strategy includes investing in additional restaurant and retail properties to grow and diversify our existing portfolio. We expect this acquisition strategy will decrease our reliance on Darden and help us gain exposure to non-restaurant retail properties over time. We intend to purchase properties that are well located, occupied by durable concepts, with creditworthy tenants whose operating cash flows are expected to meaningfully exceed their lease payments to us. We seek to improve the probability of successful tenant renewal at the end of initial lease terms by acquiring properties that have high levels of operator profitability compared to rent payments and have absolute rent levels that generally reflect market rates.

During the nine months ended September 30, 2022, FCPT acquired 70 properties for a total investment value of $171.8 million, including transaction costs. These properties are 100% occupied under net leases with a weighted average remaining lease term of 7.5 years.

At September 30, 2022, our lease portfolio had the following characteristics:

•982 properties located in 47 states and representing an aggregate leasable area of 6.4 million square feet;

•99.9% occupancy (based on leasable square footage);

•An average remaining lease term of 8.6 years (weighted by annualized base rent); and

•An average annual rent escalation of 1.44% through December 31, 2027 (weighted by annualized base rent).

COVID-19

We are closely monitoring the impact of the COVID-19 pandemic, including the spread of new variants of the virus, on all aspects of our business, including how it will impact our tenants. We collected 99.9% of our portfolio’s contractual base rent for the nine months ended September 30, 2022 and did not abate any rent, or agree to any rent deferrals during the nine months ended September 30, 2022. The situation surrounding the COVID-19 pandemic remains fluid, and we continue to actively manage our response and assess potential impacts to our financial position and operating results, as well as potential adverse developments to our business. For further information regarding the impact of COVID-19 on the Company, see Part I, Item 1A titled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021.

Results of Operations

During the nine months ended September 30, 2022 and 2021, we operated in two segments: real estate operations and restaurant operations. The following discussion includes the results of our operations for the three and nine months ended September 30, 2022 and 2021 as summarized in the table below:


	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2022		2021		2022		2021
Revenues:
Rental revenue	$	48,719	$	43,673	$	143,526	$	127,350
Restaurant revenue	7,289		7,033		22,304		19,374
Total revenues	56,008		50,706		165,830		146,724
Operating expenses:
General and administrative	4,917		4,262		14,884		13,490
Depreciation and amortization	10,588		8,831		30,420		25,455
Property expenses	1,999		1,453		5,835		3,657
Restaurant expenses	6,790		6,546		20,725		17,994
Total operating expenses	24,294		21,092		71,864		60,596
Interest expense	(9,177)		(8,311)		(26,583)		(24,328)
Other income	164		2		250		10
Realized gain on sale, net	1,828		—		7,584		431
Income tax benefit ( expense)	23		(97)		(209)		(231)
Net income	24,552		21,208		75,008		62,010
Net income attributable to noncontrolling interest	(34)		(44)		(105)		(129)
Net Income Attributable to Common Shareholders	$	24,518	$	21,164	$	74,903	$	61,881

Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021

Real Estate Operations

Rental Revenue

Rental revenue increased $5.0 million, or 11.6%, during the three months ended September 30, 2022 compared to the three months ended September 30, 2021. This increase was due primarily to the acquisition of 103 leased properties during the year-over-year period from October 1, 2021 through September 30, 2022, which was partially offset by the disposal of four properties during the period. We do not anticipate these four dispositions to have a material impact on future revenue. During the three months ended September 30, 2022, we recognized variable lease revenue, including costs paid by the lessor and

reimbursed by the lessees within rental revenue of $1.5 million as compared to $1.1 million during the three months ended September 30, 2021. These amounts are also recognized in property expenses.

We recognize rental income on a straight-line basis to include the effect of base rent escalators, and free rent periods, if any.

General and Administrative Expenses

General and administrative expense is comprised of costs associated with staff, office rent, legal, accounting, information technology, and other professional services and other administrative services in association with our real estate operations and our REIT structure and reporting requirements. General and administrative expenses increased $655 thousand, or 15.4%, in the three months ended September 30, 2022 compared to the three months ended September 30, 2021, primarily due to an increase in compensation-related expenses and increased non-cash stock compensation expense.

Depreciation and Amortization Expense

Depreciation and amortization expense represents the depreciation on real estate investments that have estimated lives ranging from two to fifty-five years. Depreciation and amortization increased by approximately $1.8 million, or 19.9%, for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, due to the acquisition of 103 properties, during the year-over-year period from October 1, 2021 through September 30, 2022.

Property Expense

We record all tenant expenses, both reimbursed and non-reimbursed, to property expense. We also record initial direct costs (lease negotiation and other previously capitalizable transaction expenses) as property expenses. Other property expenses consist of expenses incurred on vacant properties, abandoned deal costs, and franchise taxes. During the three months ended September 30, 2022, we recorded property expenses of $2.0 million, of which $1.5 million was reimbursed by tenants. During the three months ended September 30, 2021, we recorded property expenses of $1.5 million, of which $1.1 million was reimbursed by tenants.

Interest Expense

We incur interest expense on our $400 million of term loans, any outstanding borrowings on our revolving credit facility, interest rate swaps, and our $575 million of senior fixed rate notes. Interest expense increased $866 thousand for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, primarily due to the issuance of $125 million of senior fixed notes in March 2022, which was partially offset by a lower credit spread under the credit facility as a result of the Company obtaining an additional investment grade rating.

Realized Gain on Sale

During the three months ended September 30, 2022, the Company sold four properties with a combined net book value of $6.2 million for a realized gain on sale of $1.8 million. During the three months ended September 30, 2021, the Company did not sell any assets.

Income Taxes

During the three months ended September 30, 2022 and 2021, our income tax benefit (expense) was $23 thousand and $(97) thousand, respectively. The income tax provision consists of federal, state, and local income taxes incurred by the Kerrow Restaurant Operating Business, and state and local income taxes we incurred on our lease portfolio. During the three months ended September 30, 2022, the net deferred tax asset at the Kerrow Restaurant Operating Business increased by $118 thousand. This deferred tax benefit related to the prior year provision to return adjustment and routine book-tax differences and was recorded within income tax expense in the Consolidated Statements of Income.

Restaurant Operations

Restaurant revenues increased by $256 thousand, or 3.6%, during the three months ended September 30, 2022 compared to the three months ended September 30, 2021 primarily due to continued emphasis in customer service and general improvement in casual dining trends.

Total restaurant expenses increased by $244 thousand, or 3.7%, during the three months ended September 30, 2022 compared to the three months ended September 30, 2021, primarily due to an increase in cost of goods sold and labor costs.

Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021

Real Estate Operations

Rental Revenue

Rental revenue increased $16.2 million, or 12.7%, during the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. This increase was due to the acquisition of 103 leased properties during the year-over-year period from October 1, 2021 through September 30, 2022, which was partially offset by the disposal of seven properties during the period. We do not anticipate these seven dispositions to have a material impact on future revenue. During the nine months ended September 30, 2022, we recognized variable lease revenue, including costs paid by the lessor and reimbursed by the lessees within rental revenue of $4.8 million as compared to $2.8 million during the nine months ended September 30, 2021. These amounts are also recognized in property expenses.

We recognize rental income on a straight-line basis to include the effect of base rent escalators, and free rent periods, if any.

General and Administrative Expenses

General and administrative expense is comprised of costs associated with staff, office rent, legal, accounting, information technology, and other professional services and other administrative services in association with our real estate operations and our REIT structure and reporting requirements. General and administrative expenses increased $1.4 million, or 10.3%, in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily due to an increase in compensation-related expenses and increased non-cash stock compensation expense, which was partially offset by a decrease in legal fees related to the amendment of our credit facility in the prior year.

Depreciation and Amortization Expense

Depreciation and amortization expense represents the depreciation on real estate investments that have estimated lives ranging from two to fifty-five years. Depreciation and amortization increased by approximately $5.0 million, or 19.5%, for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, due to the acquisition of 103 properties, during the year-over-year period from October 1, 2021 through September 30, 2022.

Property Expense

We record all tenant expenses, both reimbursed and non-reimbursed, to property expense. We also record initial direct costs (lease negotiation and other previously capitalizable transaction expenses) as property expenses. Other property expenses consist of expenses incurred on vacant properties and franchise taxes. During the nine months ended September 30, 2022, we recorded property expenses of $5.8 million, of which $4.8 million was reimbursed by tenants. During the nine months ended September 30, 2021, we recorded property expenses of $3.7 million, of which $2.8 million was reimbursed by tenants.

Interest Expense

We incur interest expense on our $400 million of term loans, any outstanding borrowings on our revolving credit facility, interest rate swaps, and our $575 million of senior fixed rate notes. Interest expense increased $2.3 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily due to the issuance of $100 million of senior fixed notes in April 2021 and the issuance of $125 million of senior fixed notes in March 2022, which was

partially offset by a lower credit spread under the credit facility as a result of the Company obtaining an additional investment grade rating.

Realized Gain on Sale

During the nine months ended September 30, 2022, the Company sold seven properties with a combined net book value of $12.4 million for a realized gain on sale of $7.6 million. The Company sold two properties with a combined net book value of $2.8 million for a realized gain of $431 thousand during the nine months ended September 30, 2021.

Income Taxes

During the nine months ended September 30, 2022 and 2021, our income tax expense was $209 thousand and $231 thousand, respectively. The income tax provision consists of federal, state, and local income taxes incurred by the Kerrow Restaurant Operating Business, and state and local income taxes we incurred on our lease portfolio. During the nine months ended September 30, 2022, the net deferred tax asset at the Kerrow Restaurant Operating Business increased by $57 thousand. This deferred tax benefit related to the prior year provision to return adjustment and routine book-tax differences and was recorded within income tax expense in the Consolidated Statements of Income.

Restaurant Operations

In April 2021, the Kerrow Restaurant Operating Business finished construction of and opened a seventh Longhorn Steakhouse Restaurant in San Antonio, Texas. The total investment in the seventh restaurant for the Company totaled $5.4 million, which is included in Real Estate Investments, Net in the Consolidated Balance Sheets.

Restaurant revenues increased by $2.9 million, or 15.1%, during the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 primarily due to the addition of a seventh restaurant which began operations in late April 2021 and continued emphasis in customer service and general improvement in casual dining trends.

Total restaurant expenses increased by $2.7 million, or 15.2%, during the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily due to an increase in cost of goods sold and labor costs and the addition of a seventh restaurant which began operations in April 2021.

Critical Accounting Policies

The preparation of FCPT’s consolidated financial statements in conformance with U.S. GAAP requires management to make estimates on assumptions that affect the reported amounts of assets, liabilities, revenues and expenses as well as other disclosures in the financial statements. On an ongoing basis, management evaluates its estimates and assumptions; however, actual results may differ from these estimates and assumptions, which in turn could have a material impact on our financial statements. A summary of FCPT’s critical accounting policies is included in our Annual Report on Form 10-K for the year ended December 31, 2021 in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates.” Management believes those critical accounting policies, among others, affect our more significant estimates and assumptions used in the preparation of our consolidated financial statements.

New Accounting Standards

A discussion of new accounting standards and the possible effects of these standards on our consolidated financial statements is included in Note 2 - Summary of Significant Accounting Policies of our consolidated financial statements, included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Liquidity and Financial Condition

At September 30, 2022, we had $36.7 million of cash and cash equivalents and $250 million of borrowing capacity under our revolving credit facility, which expires on November 9, 2025, subject to our ability to extend the term for one additional six-month period to May 9, 2026. The revolving credit facility provides for a letter of credit sub-limit of $25 million. See Note 6 - Long-Term Debt, Net of Deferred Financing Costs included in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information. As of September 30, 2022, we had no outstanding borrowings under the revolving credit facility. As of September 30, 2022, the Company has received an inaugural investment grade rating from Moody’s Investor Service of Baa3

(stable outlook) on its senior unsecured revolving and term loan facility. With this second investment grade rating, the Company was able to opt into a rating-based pricing grid which resulted in a lower credit spread. At September 30, 2022, the weighted average interest rate on the term loans, after consideration of the interest rate hedges, was 3.03%.

We have entered into the following interest rate swaps to hedge the interest rate variability associated with the term loan portion of our credit facility. These hedging agreements were entered into to mitigate the interest rate risk inherent in FCPT OP’s variable rate debt and not for trading purposes. These swaps are accounted for as cash flow hedges with all interest income and expense recorded as a component of net income and other valuation changes recorded as a component of other comprehensive income.

Notional Amount
($ in thousands)

Effective Date

Maturity Date

Fixed Rate to Pay

Variable Rate to Receive

200,000

11/09/2020

11/09/2022

2.002%

one-month LIBOR

100,000

11/09/2020

11/09/2023

2.302%

one-month LIBOR

50,000

11/09/2020

11/09/2025

0.503%

one-month LIBOR

150,000

11/09/2022

11/09/2024

1.913%

one-month LIBOR

25,000

11/09/2022

11/09/2025

2.718%

one-month LIBOR

50,000

11/09/2023

11/09/2025

0.821%

one-month LIBOR

100,000

11/09/2024

11/09/2025

0.821%

one-month LIBOR

50,000

11/10/2025

11/09/2027

1.541%

one-month LIBOR

50,000

11/10/2025

11/09/2027

1.485%

one-month LIBOR

50,000

11/10/2025

11/09/2028

1.496%

one-month LIBOR

50,000

11/10/2025

11/09/2028

2.033%

one-month LIBOR

25,000

11/10/2025

11/09/2028

2.247%

one-month USD-SOFR

During the first nine months of 2022, we entered into two interest rate swaps to hedge the interest rate variability associated with the term loan portion of our credit facility.

The Company has issued the following $575 million of senior unsecured fixed rate notes (together, the “Notes”) in private placements pursuant to note purchase agreements with the various purchasers.



	Maturity	Interest		Outstanding Balance
($ in thousands)	Date	Rate		September 30, 2022
Notes Payable:
Senior unsecured fixed rate note, issued June 2017	Jun 2024	4.68	%	$	50,000
Senior unsecured fixed rate note, issued June 2017	Jun 2027	4.93	%	75,000
Senior unsecured fixed rate note, issued December 2018	Dec 2026	4.63	%	50,000
Senior unsecured fixed rate note, issued December 2018	Dec 2028	4.76	%	50,000
Senior unsecured fixed rate note, issued March 2020	Jun 2029	3.15	%	50,000
Senior unsecured fixed rate note, issued March 2020	Apr 2030	3.20	%	75,000
Senior unsecured fixed rate note, issued April 2021	Apr 2029	2.74	%	50,000
Senior unsecured fixed rate note, issued April 2021	Apr 2031	2.99	%	50,000
Senior unsecured fixed rate note, issued March 2022	Mar 2031	3.09	%	50,000
Senior unsecured fixed rate note, issued March 2022	Mar 2032	3.11	%	75,000
Total Notes				$	575,000

In February 2021, we entered into a new ATM program, pursuant to which shares of our common stock having an aggregate gross sales price of up to $350 million may be offered and sold (1) by us to, or through, a consortium of banks acting as our sales agents or (2) by a consortium of banks acting as forward sellers on behalf of any forward purchasers contemplated thereunder, in each case by means of ordinary brokers’ transactions on the NYSE or otherwise at market prices prevailing at the time of sale, at prices related to prevailing market prices or at negotiated prices, by privately negotiated transactions (including block sales) or by any other methods permitted by applicable law.

During the three and nine months ended September 30, 2022, the Company executed forward sale agreements with financial institutions acting as forward purchasers under the current ATM program to sell 1,723,426 and 3,959,433 shares of common stock, respectively, at a weighted average sales price of $28.56 and $27.84 per share, respectively, before sales commissions and offering expenses. During the three months ended September 30, 2022, the Company physically settled a portion of these forward sale agreements and issued 1,190,532 shares at a weighted average share price of $26.52 for net proceeds of $31.6 million. During the nine months ended September 30, 2022, the Company physically settled a portion of these forward sale agreements and issued 1,363,956 shares at a weighted average share price of $26.42 for net proceeds of $36.0 million. The Company currently expects to fully physically settle the forward sale agreements with the forward purchasers on one or more dates specified by the Company on or prior to January 2, 2023, in which case the Company expects to receive aggregate net cash proceeds at settlement equal to the number of shares of common stock multiplied by the relevant forward price per share at such time. The forward price per share that the Company will receive upon physical settlement of the forward sale agreements will be subject to adjustment for (i) a floating interest rate factor equal to a specified daily rate less a spread, (ii) the forward purchaser's stock borrowing costs and (iii) scheduled dividends during the term of the forward sale agreement.

At September 30, 2022, there was $93.3 million available for issuance under the current ATM program.

On a short-term basis, our principal demands for funds will be for operating expenses, distributions to stockholders and interest and principal on current and any future debt financings. We expect to fund our operating expenses and other short-term liquidity requirements, capital expenditures, payment of principal and interest on our outstanding indebtedness, property improvements, re-leasing costs and cash distributions to common stockholders, primarily through cash provided by operating

activities, and, for acquisitions, investments, and other capital expenditures, from borrowings under our $250 million revolving credit facility.

On a long-term basis, our principal demands for funds include payment of dividends, financing of property acquisitions, and scheduled debt maturities. We plan to meet our long-term capital needs by issuing debt or equity securities or by obtaining asset-level financing, subject to market conditions. In addition, we may issue common stock to permanently finance properties that were financed on an intermediate basis by our revolving credit facility or other indebtedness. In the future, we may also acquire properties by issuing partnership interests of FCPT OP in exchange for property owned by third parties. Our common partnership interests would be redeemable for cash or shares of our common stock, at FCPT’s election.

We continually evaluate alternative financing and believe that we can obtain financing on reasonable terms. However, we cannot be assured that we will have access to the capital markets at times and at terms that are acceptable to us. We expect that our primary uses of capital will be for property and other asset acquisitions and the funding of tenant improvements and other capital expenditures, and debt refinancing.

Because the properties in our portfolio are generally leased to tenants under net leases, where the tenant is responsible for property operating costs and expenses, our exposure to rising property operating costs due to inflation is mitigated. Interest rates and other factors, such as occupancy, rental rate and the financial condition of our tenants, influence our performance more so than does inflation. Changes in interest rates do not necessarily correlate with inflation rates or changes in inflation rates. As described above, we currently offer leases that provide for payments of base rent with scheduled annual fixed increases.

Contractual Obligations

There were no material changes outside the ordinary course of business to the information regarding specified contractual obligations contained in our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC.

Off-Balance Sheet Arrangements

At September 30, 2022, we had no off-balance sheet arrangements.

Supplemental Financial Measures

The following tables presents a reconciliation of U.S. GAAP net income to National Association of Real Estate Investment Trusts (“NAREIT”) funds from operations (“FFO”) and adjusted funds from operations (“AFFO”) for the three and nine months ended September 30, 2022 and 2021.


	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands, except share and per share data)	2022		2021		2022		2021
Net income	$	24,552	$	21,208	$	75,008	$	62,010
Depreciation and amortization on real estate investments	10,558		8,797		30,322		25,378
Realized gain on sales of real estate	(1,828)		—		(7,584)		(431)

FFO (as defined by NAREIT)	$	33,282	$	30,005	$	97,746	$	86,957

Straight-line rent	(1,648)		(1,979)		(4,939)		(5,775)

Deferred income tax benefit (1)	(118)		—		(57)		—
Stock-based compensation	1,206		844		3,739		3,092
Non-cash amortization of deferred financing costs	496		468		1,460		1,901

Non-real estate investment depreciation	30		34		98		77

Other non-cash revenue adjustments	543		536		1,600		1,590

Adjusted Funds from Operations (AFFO)	$	33,791	$	29,908	$	99,647	$	87,842

Fully diluted shares outstanding (2)	82,234,006		76,519,431		81,126,296		76,381,395

FFO per diluted share	$	0.40	$	0.39	$	1.20	$	1.14

AFFO per diluted share	$	0.41	$	0.39	$	1.23	$	1.15

(1) Amount represents non-cash deferred income tax benefit recognized in the three and nine months ended September 30, 2022 for income tax benefit at the Kerrow Restaurant Business.

(2) Assumes the issuance of common shares for OP units held by non-controlling partners.

Non-GAAP Definitions

The certain non-GAAP financial measures included above management believes are helpful in understanding our business, as further described below. Our definition and calculation of non-GAAP financial measures may differ from those of other REITs and therefore may not be comparable. The non-GAAP measures should not be considered an alternative to net income as an indicator of our performance and should be considered only a supplement to net income, and to cash flows from operating, investing or financing activities as a measure of profitability and/or liquidity, computed in accordance with U.S. GAAP.

FFO is a supplemental measure of our performance which should be considered along with, but not as an alternative to, net income and cash provided by operating activities as a measure of operating performance and liquidity. We calculate FFO in accordance with the standards established by the NAREIT. FFO represents net income (loss) computed in accordance with U.S. GAAP, excluding gains (or losses) from sales of property and undepreciated land and impairment write-downs of depreciable real estate, plus real estate related depreciation and amortization (excluding amortization of deferred financing costs) and after adjustments for unconsolidated partnerships and joint ventures. We also omit the tax impact of non-FFO producing activities from FFO determined in accordance with the NAREIT definition.

Our management uses FFO as a supplemental performance measure because, in excluding real estate related depreciation and amortization and gains and losses from property dispositions, it provides a performance measure that, when compared year over year, captures trends in occupancy rates, rental rates and operating costs. We offer this measure because we recognize that FFO will be used by investors as a basis to compare our operating performance with that of other REITs. However, because FFO excludes depreciation and amortization and captures neither the changes in the value of our properties that result from use or market conditions, nor the level of capital expenditures and capitalized leasing commissions necessary to maintain the operating performance of our properties, all of which have real economic effect and could materially impact our financial

condition and results from operations, the utility of FFO as a measure of our performance is limited. FFO is a non-GAAP measure and should not be considered a measure of liquidity including our ability to pay dividends or make distributions. In addition, our calculations of FFO are not necessarily comparable to FFO as calculated by other REITs that do not use the same definition or implementation guidelines or interpret the standards differently from us. Investors in our securities should not rely on these measures as a substitute for any U.S. GAAP measure, including net income.

Adjusted Funds from Operations is a non-U.S. GAAP measure that is used as a supplemental operating measure specifically for comparing year-over-year ability to fund dividend distribution from operating activities. AFFO is used by us as a basis to address our ability to fund our dividend payments. We calculate AFFO by adding to or subtracting from FFO:

1.Transaction costs incurred in connection with business combinations

2.Straight-line rent revenue adjustment

3.Stock-based compensation expense

4.Non-cash amortization of deferred financing costs

5.Other non-cash interest expense (income)

6.Non-real estate investment depreciation

7.Merger, restructuring and other related costs

8.Impairment charges

9.Other non-cash revenue adjustments, including amortization of above and below market leases and lease incentives

10.Amortization of capitalized leasing costs

11.Debt extinguishment gains and losses

12.Non-cash expense (income) adjustments related to deferred tax benefits

AFFO is not intended to represent cash flow from operations for the period, and is only intended to provide an additional measure of performance by adjusting the effect of certain items noted above included in FFO. AFFO is a widely reported measure by other REITs; however, other REITs may use different methodologies for calculating AFFO and, accordingly, our AFFO may not be comparable to other REITs.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Information concerning market risk is incorporated herein by reference to Part II, Item 7A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as supplemented by the information under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part I, Item 1A titled “Risk Factors.” Other than the developments described thereunder, including changes in the fair values of our assets, there have been no other material changes in our quantitative or qualitative exposure to market risk since December 31, 2021.

Item 4. Controls and Procedures.

Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

During the third quarter of 2022, there have been no changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

In the ordinary course of our business, we are party to various claims and legal actions that management believes are routine in nature and incidental to the operation of our business. Management believes that the outcome of these proceedings will not have a material adverse effect upon our operations, financial condition or liquidity.

Item 1A. Risk Factors.

There have been no material changes to the risk factors as disclosed in Part I, Item 1A. “Risk Factors” beginning on page 9 of our Annual Report on Form 10-K for the year ended December 31, 2021.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not Applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

The exhibits issued in the accompanying Index to Exhibits are filed as part of this Form 10-Q and incorporated herein by reference.

INDEX TO EXHIBITS


Exhibit Number						Description
3.1						Articles of Amendment and Restatement of Four Corners Property Trust, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on October 27, 2015).
3.2						Amended and Restated Bylaws of Four Corners Property Trust, Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on October 27, 2015).
31 (a)*						Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31 (b)*						Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32 (a)*						Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32 (b)*						Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101*						The following materials from Four Corners Property Trust, Inc.’s Quarterly Report on Form 10-Q for the three months ended September 30, 2022 formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statement of Equity, (v) the Consolidated Statements of Cash Flows, and (vi) related notes to these consolidated financial statements.
104*						The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, formatted in iXBRL and contained in Exhibit 101.

* Filed herewith

SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.




		FOUR CORNERS PROPERTY TRUST, INC.


Dated:	November 2, 2022	By:	/s/ William H. Lenehan
			William H. Lenehan
			President and Chief Executive Officer
			(Principal Executive Officer)


Dated:	November 2, 2022	By:	/s/ Gerald R. Morgan
			Gerald R. Morgan
			Chief Financial Officer
			(Principal Financial Officer)


Dated:	November 2, 2022	By:	/s/ Niccole M. Stewart
			Niccole M. Stewart
			Chief Accounting Officer
			(Principal Accounting Officer)