Four Corners Property Trust, Inc. [FCPT] Filings

10-Q 1 fcpt-20230930.htm 10-Q fcpt-20230930

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, 2023


☐			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, 2023: 90,565,195

FOUR CORNERS PROPERTY TRUST, INC.

FORM 10 - Q

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023

TABLE OF CONTENTS


		Page
Part I	FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Consolidated Balance Sheets at September 30, 2023 (unaudited) and December 31, 2022	1
	Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2023 and 2022 (unaudited)	2
	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2023 and 2022 (unaudited)	3
	Consolidated Statements of Changes in Equity for the Three and Nine Months Ended September 30, 2023 and 2022 (unaudited)	4
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022 (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, 2023 (Unaudited)		December 31, 2022
ASSETS
Real estate investments:
Land	$	1,235,943	$	1,115,827
Buildings, equipment and improvements	1,700,513		1,539,875
Total real estate investments	2,936,456		2,655,702
Less: Accumulated depreciation	(730,014)		(706,702)
Total real estate investments, net	2,206,442		1,949,000
Intangible lease assets, net	122,132		106,206
Total real estate investments and intangible lease assets, net	2,328,574		2,055,206
Real estate held for sale	3,150		7,522
Cash and cash equivalents	5,675		26,296
Straight-line rent adjustment	63,844		61,027
Derivative assets	31,292		35,276
Deferred tax assets	1,221		988
Other assets	22,138		12,272
Total Assets	$	2,455,894	$	2,198,587

LIABILITIES AND EQUITY
Liabilities:
Term loan and revolving credit facility, net of deferred financing costs	$	455,342	$	424,134
Senior unsecured notes, net of deferred financing costs	670,756		571,343
Dividends payable	30,724		29,064
Rent received in advance	13,204		11,710
Derivative liabilities	—		9
Other liabilities	32,224		24,017
Total liabilities	1,202,250		1,060,277

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, 90,565,195 and 85,637,293 shares issued and outstanding, respectively	9		9
Additional paid-in capital	1,235,247		1,104,522
Retained earnings (accumulated deficit)	(19,165)		576
Accumulated other comprehensive income	35,314		30,944
Noncontrolling interest	2,239		2,259
Total equity	1,253,644		1,138,310
Total Liabilities and Equity	$	2,455,894	$	2,198,587

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,
	2023		2022		2023		2022
Revenues:
Rental revenue	$	57,243	$	48,719	$	162,267	$	143,526
Restaurant revenue	7,596		7,289		23,196		22,304
Total revenues	64,839		56,008		185,463		165,830
Operating expenses:
General and administrative	5,498		4,917		17,153		14,884
Depreciation and amortization	13,418		10,588		37,411		30,420
Property expenses	2,916		1,999		8,742		5,835
Restaurant expenses	7,229		6,790		21,721		20,725
Total operating expenses	29,061		24,294		85,027		71,864
Interest expense	(12,276)		(9,177)		(32,245)		(26,583)
Other income	283		164		809		250
Realized gain on sale	318		1,828		2,053		7,584
Income tax benefit (expense)	89		23		(50)		(209)
Net income	24,192		24,552		71,003		75,008
Net income attributable to noncontrolling interest	(31)		(34)		(92)		(105)
Net Income Available to Common Shareholders	$	24,161	$	24,518	$	70,911	$	74,903

Basic net income per share:	$	0.27	$	0.30	$	0.81	$	0.93
Diluted net income per share:	$	0.27	$	0.30	$	0.80	$	0.92
Weighted average number of common shares outstanding:
Basic	90,366,861		81,884,974		87,872,205		80,797,829
Diluted	90,595,872		82,119,447		88,105,134		81,011,737
Dividends declared per common share	$	0.3400	$	0.3325	$	1.0200	$	0.9975

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,
	2023		2022		2023		2022
Net income	$	24,192	$	24,552	$	71,003	$	75,008
Other comprehensive income:
Effective portion of change in fair value of derivative instruments	6,609		17,151		12,020		39,151
Reclassification adjustment of derivative instruments included in net income	(3,007)		(104)		(7,645)		2,700
Other comprehensive income	3,602		17,047		4,375		41,851
Comprehensive income	27,794		41,599		75,378		116,859
Less: comprehensive income attributable to noncontrolling interest
Net income attributable to noncontrolling interest	31		34		92		105
Other comprehensive income attributable to noncontrolling interest	45		24		5		59
Comprehensive income attributable to noncontrolling interest	76		58		97		164
Comprehensive Income Attributable to Common Shareholders	$	27,718	$	41,541	$	75,281	$	116,695

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, 2023


	Common Stock			Additional Paid-in Capital		Retained Earnings (Accumulated Deficit)		Accumulated Other Comprehensive Income (Loss)		Noncontrolling Interest		Total
	Shares	Par Value
Balance at June 30, 2023	90,565,846	$	9	$	1,233,775	$	(12,602)	$	31,757	$	2,202	$	1,255,141
Net income	—	—		—		24,161		—		31		24,192
Other comprehensive income	—	—		—		—		3,557		45		3,602

ATM proceeds, net of issuance costs	—	—		—		—		—		—		—
Dividends and distributions to equity holders	—	—		—		(30,724)		—		(39)		(30,763)
Stock-based compensation, net	(651)	—		1,472		—		—		—		1,472
Balance at September 30, 2023	90,565,195	$	9	$	1,235,247	$	(19,165)	$	35,314	$	2,239	$	1,253,644

For the Nine Months Ended September 30, 2023


	Common Stock			Additional Paid-in Capital		Retained Earnings (Accumulated Deficit)		Accumulated Other Comprehensive Income (Loss)		Noncontrolling Interest		Total
	Shares	Par Value
Balance at December 31, 2022	85,637,293	$	9	$	1,104,522	$	576	$	30,944	$	2,259	$	1,138,310
Net income	—	—		—		70,911		—		92		71,003
Other comprehensive income	—	—		—		—		4,370		5		4,375

ATM proceeds, net of issuance costs	4,787,970	—		128,184		—		—		—		128,184
Dividends and distributions to equity holders	—	—		—		(90,652)		—		(117)		(90,769)
Stock-based compensation, net	139,932	—		2,541		—		—		—		2,541
Balance at September 30, 2023	90,565,195	$	9	$	1,235,247	$	(19,165)	$	35,314	$	2,239	$	1,253,644

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

For the Three Months Ended September 30, 2022


	Common Stock			Additional Paid-in Capital		Retained Earnings (Accumulated Deficit)		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 Deficit)		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.

FOUR CORNERS PROPERTY TRUST, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Nine Months Ended September 30,
	2023		2022
Cash flows - operating activities
Net income	$	71,003	$	75,008
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	37,411		30,420
Realized gain on sale	(2,053)		(7,584)
Non-cash revenue adjustments	1,510		1,600
Amortization of financing costs	1,720		1,460
Stock-based compensation expense	4,798		3,739
Deferred income taxes	(232)		(57)
Changes in assets and liabilities:
Derivative assets and liabilities	8,350		477
Straight-line rent adjustment	(4,358)		(4,939)
Rent received in advance	1,494		559

Other assets and liabilities	9,056		8,604
Net cash provided by operating activities	128,699		109,287
Cash flows - investing activities
Purchases of real estate investments	(328,469)		(171,835)
Proceeds from sale of real estate investments	24,087		20,365
Advance refunds on acquisition of operating real estate	(35)		(459)
Net cash used in investing activities	(304,417)		(151,929)
Cash flows - financing activities
Net proceeds from ATM equity issuance	128,184		66,257

Proceeds from issuance of senior notes	100,000		125,000
Payment of deferred financing costs	(1,098)		(1,062)
Proceeds from revolving credit facility	118,000		28,000
Repayment of revolving credit facility	(88,000)		(64,000)
Payment of dividends to shareholders	(88,991)		(80,053)
Distributions to non-controlling interests	(117)		(114)

Employee shares withheld for taxes	(2,257)		(1,017)
Net cash provided by financing activities	165,721		73,011
Net (decrease) increase in cash and cash equivalents, including restricted cash	(9,997)		30,369
Cash and cash equivalents, including restricted cash, at beginning of period	26,296		6,300
Cash and cash equivalents, including restricted cash, at end of period	$	16,299	$	36,669
Supplemental disclosures:
Interest paid	$	33,031	$	17,318
Income taxes paid	$	355	$	358
Operating lease payments received (lessor)	$	152,648	$	135,546
Operating lease payments remitted (lessee)	$	678	$	680
Non-cash activities:
Dividends declared but not paid	$	30,724	$	27,487
Change in fair value of derivative instruments	$	(3,975)	$	41,374

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.

Reclassifications

Certain amounts previously reported under specific financial statement captions have been reclassified to be consistent with the current period presentation. As of September 30, 2023, we have conformed the prior presentation of the Long-term debt, net of deferred financing costs to the current format for comparability purposes.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

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.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

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 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, 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, 2023 or 2022.

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. One property was held for sale at September 30, 2023, and two properties were held for sale at December 31, 2022.

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)	2023		2022
Cash and cash equivalents	$	5,675	$	26,296
Restricted cash (included in Other assets)	10,624		—
Total Cash, Cash Equivalents, and Restricted Cash	$	16,299	$	26,296

Debt

The Company’s debt consists of non-amortizing term loans, a revolving credit facility and senior, unsecured, fixed rate notes (collectively referred to as “Debt”). Debt is carried at unpaid principal balance, net of deferred financing costs. All of our 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 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 - 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

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 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, 2023, 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 paid lease incentives of $0.2 million to tenants during the three and nine months ended September 30, 2023. During the year ended December 31, 2022, the Company paid lease incentives of $0.1 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, 2023 and December 31, 2022, credit card receivables, included in other assets, totaled $227 thousand and $195 thousand, respectively. We recognize sales from our

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

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.

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, 2023, the Company sold two properties, which resulted in a realized gain of $318 thousand. During the nine months ended September 30, 2023, the Company sold six properties, which resulted in a realized gain of $2.1 million. 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.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

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.

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. 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.

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 51.7% 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, 2023, we had 314 Olive Garden branded locations in our portfolio, which comprise approximately 27.8% of our leased properties and approximately 37.0% of the revenues received under leases. Longhorn Steakhouse branded restaurants comprise approximately 10.2% of our leased properties and approximately 10.4% of the revenues received under leases as of September 30, 2023. 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 10.1%).

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

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, 2023, our exposure to risk related to amounts due to us on our derivative instruments totaled $31.3 million, and the counterparty to such instruments are investment grade financial institutions. Our credit risk exposure with regard to our cash and the $220.0 million available capacity under the revolver portion of our credit facility is spread among a diversified group of investment grade financial institutions.

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)	2023		2022
Land	$	1,235,943	$	1,115,827
Buildings and improvements	1,564,663		1,404,198
Equipment	135,850		135,677
Total gross real estate investments	2,936,456		2,655,702
Less: Accumulated depreciation	(730,014)		(706,702)
Total real estate investments, net	2,206,442		1,949,000
Intangible lease assets, net	122,132		106,206
Total Real Estate Investments and Intangible Lease Assets, Net	$	2,328,574	$	2,055,206

During the nine months ended September 30, 2023, the Company invested $328.5 million, including transaction costs, in 90 properties located in twenty-six states, and allocated the investment as follows: $122.8 million to land, $172.8 million to buildings and improvements, and $32.9 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 11.9 years as of September 30, 2023. During the nine months ended September 30, 2023, the Company sold six properties with a combined net book value of $20.6 million for a realized gain of $2.1 million.

During the nine months ended September 30, 2023, 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 corresponding decrease in finance lease right-of-use assets of $2.3 million.

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 were 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.

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)	2023		2022
Acquired in-place lease intangibles	$	136,455	$	109,371
Above-market leases	13,821		13,821
Finance leases - right of use asset (1)	14,040		16,201
Lease incentives	7,974		6,989
Tenant improvements intangibles	3,605		—
Direct lease costs	271		153
Total	176,166		146,535
Less: Accumulated amortization	(54,034)		(40,329)
Intangible Lease Assets, Net	$	122,132	$	106,206

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


	September 30,		December 31,
(In thousands)	2023		2022
Below-market leases	$	2,610	$	2,610
Less: Accumulated amortization	(1,350)		(1,158)
Intangible Lease Liabilities, Net	$	1,260	$	1,452

The value of acquired in-place leases amortized and included in depreciation and amortization expense was $4.4 million and $3.4 million for the three months ended September 30, 2023 and 2022, respectively, and $12.3 million and $9.5 million for the nine months ended September 30, 2023 and 2022, respectively. The value of above-market and below-market leases amortized as an adjustment to revenue was $326 thousand and $402 thousand for the three months ended September 30, 2023 and 2022, respectively, and $1 million and $1.2 million for the nine months ended September 30, 2023 and 2022, respectively. For the three months ended September 30, 2023 and 2022, lease incentive amortization was $191 thousand and $136 thousand, respectively, and $473 thousand and $407 thousand for the nine months ended September 30, 2023 and 2022, respectively.

At September 30, 2023, the total weighted average amortization period remaining for our intangible lease assets and liabilities was 8.7 years, and the individual weighted average amortization period remaining for acquired in-place lease intangibles, above-market leases, below-market leases, lease incentives, and tenant improvement intangible was 8.4 years, 6.7 years, 10.1 years, 12.2 years, and 15.4 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, 2023.



(In thousands)	September 30,
2023 (three months)	$	4,658
2024	17,340
2025	14,896
2026	13,122
2027	10,754
Thereafter	39,497
Total Future Amortization	$	100,267

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, 2023, maturities of operating lease liabilities were as follows:


(In thousands)	September 30,
2023 (three months)	$	178
2024	718
2025	470
2026	310
2027	319
Thereafter	4,752
Total Payments	6,747
Less: Interest	(1,978)
Operating Lease Liability	$	4,769

The weighted-average discount rate for operating leases at September 30, 2023 was 4.30%. The weighted-average remaining lease term was 15.9 years.

Rental expense was $226 thousand and $218 thousand for the three months ended September 30, 2023 and 2022, respectively. Rental expense was $683 thousand and $671 thousand for the nine months ended September 30, 2023 and 2022, 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, 2023 and 2022.


	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2023		2022		2023		2022
Lease revenue - operating leases	$	54,882	$	47,188	$	155,149	$	138,678
Variable lease revenue (tenant reimbursements)	2,361		1,531		7,118		4,848
Total Rental Revenue	$	57,243	$	48,719	$	162,267	$	143,526

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,
2023 (three months)	$	53,993
2024	217,035
2025	215,658
2026	214,084
2027	206,044
Thereafter	974,898
Total Future Minimum Lease Payments	$	1,881,712

Ground Leases as Lessee

As of September 30, 2023 and December 31, 2022, the Company had finance ground lease assets aggregating $14.0 million and $16.2 million, respectively. 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 60 years to 95 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 90.3 years at September 30, 2023.

NOTE 6 – DEBT, NET OF DEFERRED FINANCING COSTS

At September 30, 2023, our debt consisted of (1) $430 million of non-amortizing term loans and (2) $675 million of senior, unsecured, fixed rate notes. At December 31, 2022, our debt consisted of (1) $430 million of non-amortizing term loans and (2) $575 million of senior, unsecured, fixed rate notes. At September 30, 2023 and December 31, 2022, we had outstanding borrowings of $30 million and $0 million, respectively, under the revolving credit facility, and there were no outstanding letters of credit. At September 30, 2023, we had $220 million of borrowing capacity under the revolving credit facility. The revolving credit facility 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 6.38% and 5.10% at September 30, 2023 and December 31, 2022, respectively. The weighted average interest rate on the revolving credit facility was 6.25% at September 30, 2023.

The following table presents the Term Loan balances as of September 30, 2023 and December 31, 2022.


				Outstanding Balance
	Maturity	Interest		September 30,		December 31,
(Dollars in thousands)	Date	Rate		2023		2022
Term Loans:
Term loan due 2025	Nov 2025	6.40%	(a)	150,000		150,000
Term loan due 2026	Nov 2026	6.40%	(a)	100,000		100,000
Term loan due 2027	Jan 2027	6.35%	(a)	90,000		90,000
Term loan due 2028	Jan 2028	6.35%	(a)	90,000		90,000
Total Term Loans				$	430,000	$	430,000
(a) Loan is a variable‑rate loan which resets at Daily Simple SOFR + the applicable credit spread of 0.95% to 1.00% at September 30, 2023.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Note Purchase Agreement

On June 5, 2023, FCPT entered into agreements to issue $100 million of senior unsecured notes (the "Notes"), which were issued on July 12, 2023. The Notes have a ten-year term, maturing on July 12, 2033, and are priced at a fixed interest rate of 6.44%. The Notes were issued at par value. The following table presents the senior unsecured fixed rate notes balance as of September 30, 2023 and December 31, 2022.


				Outstanding Balance
	Maturity	Interest		September 30,		December 31,
(Dollars in thousands)	Date	Rate		2023		2022
Notes Payable:
Senior unsecured fixed rate note, issued June 2017	Jun 2024	4.68	%	$	50,000	$	50,000
Senior unsecured fixed rate note, issued December 2018	Dec 2026	4.63	%	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 2028	4.76	%	50,000		50,000
Senior unsecured fixed rate note, issued April 2021	Apr 2029	2.74	%	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 March 2022	Mar 2031	3.09	%	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 2032	3.11	%	75,000		75,000
Senior unsecured fixed rate note, issued July 2023	Jul 2033	6.44	%	100,000		—
Total Notes				$	675,000	$	575,000

Debt Maturities

The following presents scheduled principal payments related to the Company’s debt as of September 30, 2023.


(In thousands)	September 30,
Remainder of 2023	$	—
2024	50,000
2025	180,000
2026	150,000
2027	165,000
Thereafter	590,000
Total Scheduled Principal Payments	$	1,135,000

Deferred Financing Costs

At September 30, 2023 and December 31, 2022, term loan and revolving credit facility net unamortized deferred financing costs were approximately $4.7 million and $5.9 million, respectively. During the three months ended September 30, 2023 and 2022, amortization of deferred financing costs was $403 thousand and $335 thousand, respectively. During the nine months ended September 30, 2023 and 2022, amortization of deferred financing costs was $1.2 million and $1.0 million, respectively.

At September 30, 2023 and December 31, 2022, senior unsecured notes net unamortized deferred financing costs were approximately $4.2 million and $3.6 million, respectively. During the three months ended September 30, 2023 and 2022, amortization of deferred financing costs was $189 thousand and $161 thousand, respectively. During the nine months ended September 30, 2023 and 2022, amortization of deferred financing costs was $511 thousand and $455 thousand, respectively.

The Company was in compliance with all debt covenants at September 30, 2023 and December 31, 2022.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

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 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, 2023 and 2022, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt.

As of September 30, 2023, $350 million of our variable-rate debt is hedged by swaps with notional values totaling $350 million. As of December 31, 2022, $325 million of our variable-rate debt was hedged by swaps with notional values totaling $325 million.

During the nine months ended September 30, 2023, we entered into two interest rate swaps to hedge the interest rate variability associated with the term loan portion of our credit facility.


Product	Fixed Rate		Notional Amount ($ in thousands)		Index	Effective Date	Maturity Date
Swap	2.19	%	$	100,000	Daily Simple SOFR + 10 bps	10/25/2022	11/09/2023
Swap	1.88	%	150,000		Daily Simple SOFR + 10 bps	11/09/2022	11/09/2024
Swap	0.44	%	50,000		Daily Simple SOFR + 10 bps	10/25/2022	11/09/2025
Swap	2.70	%	25,000		Daily Simple SOFR + 10 bps	11/09/2022	11/09/2025
Swap (1)	0.82	%	50,000		Daily Simple SOFR + 10 bps	11/09/2023	11/09/2025
Swap	4.12	%	25,000		Daily Simple SOFR + 10 bps	03/09/2023	11/09/2026
Swap	3.65	%	25,000		Daily Simple SOFR + 10 bps	11/09/2023	11/09/2026
Swap	2.25	%	25,000		1m Term SOFR	11/10/2025	11/09/2028
Swap	1.48	%	50,000		Daily Simple SOFR + 10 bps	11/10/2025	11/09/2027
Swap	1.54	%	50,000		Daily Simple SOFR + 10 bps	11/10/2025	11/09/2027
Swap	4.25	%	25,000		Daily Simple SOFR + 10 bps	11/09/2023	11/09/2028
Swap	1.49	%	50,000		Daily Simple SOFR + 10 bps	11/10/2025	11/09/2028
Swap	2.02	%	50,000		Daily Simple SOFR + 10 bps	11/10/2025	11/09/2028
(1) In November 2024, the notional amount of the swap will increase to $150 million

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 debt. During the nine months ended September 30, 2023, the Company terminated four cash flow hedges in connection with the $100 million senior unsecured note offering that was entered into on June 5, 2023 and funded on July 12, 2023. These cash flow hedges had a total notional value of $100 million and were entered into at various dates ranging from February 2022 through April 2023 to hedge

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

the interest rate on the offering. The swaps were terminated on May 25, 2023 for approximately a $8.1 million gain which will be amortized over the next 10 years as a reduction to interest expense.

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 $11.8 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, 2023 and 2022, 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, 2023 and December 31, 2022.


	Derivative Assets					Derivative Liabilities
	Balance Sheet Location	Fair Value at				Balance Sheet Location	Fair Value at
(Dollars in thousands)		September 30, 2023		December 31, 2022			September 30, 2023		December 31, 2022
Derivatives designated as hedging instruments:
Interest rate swaps	Derivative assets	$	31,292	$	35,276	Derivative liabilities	$	—	$	9
Total		$	31,292	$	35,276		$	—	$	9

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, 2023 and 2022.


(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, 2023	$	6,609	Interest expense	$	(3,007)	$	(12,276)
Three months ended September 30, 2022	17,151		Interest expense	(104)		(9,177)
Nine months ended September 30, 2023	12,020		Interest expense	(7,645)		(32,245)
Nine months ended September 30, 2022	39,151		Interest expense	2,700		(26,583)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

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, 2023 and December 31, 2022. 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, 2023	$	31,292	$	—	$	31,292	$	—	$	—	$	31,292
December 31, 2022	35,276		—		35,276		(9)		—		35,267


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, 2023	$	—	$	—	$	—	$	—	$	—	$	—
December 31, 2022	9		—		9		(9)		—		—

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, 2023 the fair value of derivatives in a net asset position related to these agreements was $31.3 million and at December 31, 2022 the fair value of derivatives in a net asset position related to these agreements was $35.3 million. As of September 30, 2023, we have not posted any collateral related to these agreements. If we or our counterparty had breached any of these provisions at September 30, 2023, we would have been entitled to the termination value of approximately $31.3 million.

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)	2023		2022
Operating lease right-of-use asset	$	4,050	$	4,428
Restricted cash	10,624		—
Prepaid acquisition costs and deposits	1,878		2,079
Accounts receivable	2,388		2,661
Prepaid assets	1,347		1,300
Food and beverage inventories	233		274
Other	1,618		1,530
Total Other Assets	$	22,138	$	12,272

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Other Liabilities

The components of other liabilities were as follows:


	September 30,		December 31,
(In thousands)	2023		2022
Accrued interest expense	$	8,983	$	3,845
Tenant improvements payable and deposits	8,271		5,953
Operating lease liability	4,769		5,141
Accrued tenant property tax	3,179		1,537
Intangible lease liabilities, net	1,260		1,452
Accrued compensation	2,347		2,700
Accrued operating expenses	280		257
Accounts payable	608		766
Other	2,527		2,366
Total Other Liabilities	$	32,224	$	24,017

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, 2023 and 2022, we recorded an income tax benefit of $89 thousand and $23 thousand, respectively. During the nine months ended September 30, 2023 and 2022, we recorded income tax expense of $50 thousand and $209 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 is inherently subjective, as it requires the Company to forecast its business and general economic environment in future periods. During the three and nine months ended September 30, 2023, $184 thousand and $232 thousand, respectively, was recorded as a deferred tax benefit related to net operating losses and routine book-tax differences within income tax expense in the Consolidated Statements of Income. During the three and nine months ended September 30, 2022, $118 thousand and $57 thousand, respectively, was recorded as a deferred tax benefit within income tax expense in the Consolidated Statements of Income.

NOTE 10 – EQUITY

Preferred Stock

At September 30, 2023 and December 31, 2022, 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, 2023 and December 31, 2022.

Common Stock

At September 30, 2023 and December 31, 2022, the Company was authorized to issue 500,000,000 shares, $0.0001 par

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

value per share of common stock. At September 30, 2023, there were 90,565,195 shares of the Company's common stock issued and outstanding.

On March 13, 2023, we declared a dividend of $0.3400 per share, which was paid in April 2023 to common stockholders of record as of March 31, 2023.

On June 14, 2023, we declared a dividend of $0.3400 per share, which was paid in July 2023 to common stockholders of record as of June 30, 2023.

On September 18, 2023, we declared a dividend of $0.3400 per share, which was paid in October 2023 to common stockholders of record as of September 30, 2023.

Common Stock Issuance Under the At-The-Market Program

On November 7, 2022, the Company entered into a new ATM program (the “current ATM program”), pursuant to which shares of the Company’s common stock having an aggregate gross sales price of up to $450.0 million may be offered and sold (1) by the Company to, or through, a consortium of banks acting as its 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

Four Corners Property Trust, Inc. [FCPT] Filings
10-Q	[2023-11-02]
10-Q	[2023-08-02]
10-Q	[2023-05-02]
10-K	[2023-02-17]
10-Q	[2022-11-02]
10-Q	[2022-07-28]
10-Q	[2022-04-29]
10-K	[2022-02-23]
10-Q	[2021-10-28]
10-Q	[2021-08-06]
10-Q	[2021-04-29]
10-K	[2021-02-19]
10-Q	[2020-10-30]
10-Q	[2020-08-03]
10-Q	[2020-05-08]
10-K	[2020-02-27]
10-Q	[2019-10-31]
10-Q	[2019-07-31]
10-Q	[2019-04-25]
10-K	[2019-02-20]
10-Q	[2018-10-30]
10-Q	[2018-07-26]
10-Q	[2018-04-26]
10-K	[2018-02-27]
10-Q	[2017-11-03]
10-Q	[2017-08-08]
10-Q	[2017-05-04]
10-K	[2017-02-27]
10-Q	[2016-11-04]
10-Q	[2016-08-04]
10-Q	[2016-05-11]
10-K	[2016-03-22]
10-Q	[2015-12-04]