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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
or
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,
CA
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 classTrading SymbolName of Exchange on Which Registered
Common Stock, $0.0001 par value per shareFCPTNew 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 IFINANCIAL INFORMATION
Item 1.Financial Statements:
Consolidated Balance Sheets at September 30, 2022 (unaudited) and December 31, 2021
Item 2.
Item 3.
Item 4.
Part IIOTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.





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 improvements1,490,729 1,437,840 
Total real estate investments2,546,957 2,404,405 
Less: Accumulated depreciation(700,499)(682,430)
Total real estate investments, net1,846,458 1,721,975 
Intangible lease assets, net106,947 104,251 
Total real estate investments and intangible lease assets, net1,953,405 1,826,226 
Cash and cash equivalents36,669 6,300 
Straight-line rent adjustment59,873 55,397 
Derivative assets36,448 2,591 
Deferred tax assets920 864 
Other assets12,562 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 payable27,487 26,655 
Rent received in advance11,870 11,311 
Derivative liabilities 7,517 
Other liabilities24,800 16,014 
Total liabilities1,031,146 939,088 
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 capital1,027,716 958,737 
Retained earnings 6,771 12,753 
Accumulated other comprehensive income (loss)31,968 (9,824)
Noncontrolling interest2,268 2,218 
Total equity1,068,731 963,892 
Total Liabilities and Equity$2,099,877 $1,902,980 
The accompanying notes are an integral part of this financial statement.
1


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 revenue7,289 7,033 22,304 19,374 
Total revenues56,008 50,706 165,830 146,724 
Operating expenses:
General and administrative4,917 4,262 14,884 13,490 
Depreciation and amortization 10,588 8,831 30,420 25,455 
Property expenses1,999 1,453 5,835 3,657 
Restaurant expenses6,790 6,546 20,725 17,994 
Total operating expenses24,294 21,092 71,864 60,596 
Interest expense(9,177)(8,311)(26,583)(24,328)
Other income164 2 250 10 
Realized gain on sale1,828  7,584 431 
Income tax benefit (expense)23 (97)(209)(231)
Net income24,552 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:
Basic81,884,974 76,250,614 80,797,829 76,094,133 
Diluted82,119,447 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.
2


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 instruments17,151 1,340 39,151 6,447 
Reclassification adjustment of derivative instruments included in net income(104)1,748 2,700 5,220 
Other comprehensive income17,047 3,088 41,851 11,667 
Comprehensive income41,599 24,296 116,859 73,677 
Less: comprehensive income attributable to noncontrolling interest
Net income attributable to noncontrolling interest34 44 105 129 
Other comprehensive income attributable to noncontrolling interest24 6 59 24 
Comprehensive income attributable to noncontrolling interest58 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.
3


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 StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Noncontrolling InterestTotal
SharesPar 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 costs2,277,782 — 61,903 — — — 61,903 
Dividends and distributions to equity holders— — — (27,487)— (38)(27,525)
Stock-based compensation, net816 — 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 StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Noncontrolling InterestTotal
SharesPar 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 costs2,451,206 — 66,257 — — — 66,257 
Dividends and distributions to equity holders— — — (80,885)— (114)(80,999)
Stock-based compensation, net92,161 — 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.
4


For the Three Months Ended September 30, 2021
Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Noncontrolling InterestTotal
SharesPar 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 units44,833 — 862 — — (862)— 
ATM proceeds, net of issuance costs1,000,193 — 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 StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Noncontrolling InterestTotal
SharesPar 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 units44,833 — 862 — — (862)— 
ATM proceeds, net of issuance costs1,161,702 — 31,799 — — — 31,799 
Dividends and distributions to equity holders— — — (72,845)— (137)(72,982)
Stock-based compensation, net164,225 — 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.
5


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 amortization30,420 25,455 
Realized gain on sale(7,584)(431)
Non-cash revenue adjustments1,600 1,590 
Amortization of financing costs1,460 1,901 
Stock-based compensation expense3,739 3,092 
Deferred income taxes(57) 
Changes in assets and liabilities:
Derivative assets and liabilities477 2,283 
Straight-line rent adjustment(4,939)(5,775)
Rent received in advance559 (1,197)
Intangible assets (lease incentive payments) (815)
Other assets and liabilities8,604 5,934 
Net cash provided by operating activities109,287 94,047 
Cash flows - investing activities
Purchases of real estate investments(171,835)(195,105)
Proceeds from sale of real estate investments20,365 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 issuance66,257 31,799 
Proceeds from issuance of senior notes125,000 100,000 
Payment of deferred financing costs(1,062)(4,625)
Proceeds from revolving credit facility28,000 148,500 
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 activities73,011 94,608 
Net increase (decrease) in cash and cash equivalents, including restricted cash30,369 (3,255)
Cash and cash equivalents, including restricted cash, at beginning of period6,300 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.
6

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.
7

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
8

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.
9

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
10

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.
11

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.
12

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.
13

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.
14

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 improvements1,355,430 1,302,114 
Equipment135,299 135,726 
Total gross real estate investments2,546,957 2,404,405 
Less: Accumulated depreciation(700,499)(682,430)
Total real estate investments, net1,846,458 1,721,975 
Intangible lease assets, net106,947 104,251 
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.
15

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 leases13,821 13,821 
Finance leases - right of use asset (1)
24,383 24,383 
Lease incentives7,061 7,061 
Direct lease costs153 87 
Total143,192 129,244 
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 
202313,658 
202411,800 
20259,952 
20268,701 
Thereafter26,809 
Total Future Amortization$74,909 
16

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 
2023705 
2024718 
2025470 
2026310 
Thereafter5,072 
Total Payments7,450 
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 
17

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 
2023187,213 
2024186,998 
2025185,534 
2026184,608 
Thereafter949,846 
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