fcpt-20210930

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, 2021


☐			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 October 28, 2021: 77,352,633

FOUR CORNERS PROPERTY TRUST, INC.

FORM 10 - Q

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021

TABLE OF CONTENTS


		Page
Part I	FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Consolidated Balance Sheets at September 30, 2021 (unaudited) and December 31, 2020	1
	Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2021 and 2020 (unaudited)	2
	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2021 and 2020 (unaudited)	3
	Consolidated Statements of Changes in Equity for the Three and Nine Months Ended September 30, 2021 and 2020 (unaudited)	4
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020 (unaudited)	6
	Notes to Consolidated Financial Statements (unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43
Item 4.	Controls and Procedures	43

Part II	OTHER INFORMATION
Item 1.	Legal Proceedings	45
Item 1A.	Risk Factors	45
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 3.	Defaults Upon Senior Securities	45
Item 4.	Mine Safety Disclosure	45
Item 5.	Other Information	45
Item 6.	Exhibits	45
	Index to Exhibits	46
	Signatures	47

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, 2021 (Unaudited)		December 31, 2020
ASSETS
Real estate investments:
Land	$	926,628	$	827,502
Buildings, equipment and improvements	1,410,635		1,327,641
Total real estate investments	2,337,263		2,155,143
Less: Accumulated depreciation	(675,827)		(657,621)
Total real estate investments, net	1,661,436		1,497,522
Intangible lease assets, net	101,072		96,291
Total real estate investments and intangible lease assets, net	1,762,508		1,593,813
Real estate held for sale	—		2,763
Cash and cash equivalents	7,809		11,064
Straight-line rent adjustment	53,589		47,938
Derivative assets	2,994		762
Other assets	11,210		11,839
Total Assets	$	1,838,110	$	1,668,179

LIABILITIES AND EQUITY
Liabilities:
Long-term debt, net of deferred financing costs	$	894,154	$	753,878
Dividends payable	24,508		24,058
Rent received in advance	10,729		11,926
Derivative liabilities	11,565		18,717
Other liabilities	20,101		15,099
Total liabilities	961,057		823,678

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, 77,245,726 and 75,874,966 shares issued and outstanding, respectively	8		8
Additional paid-in capital	873,174		840,455
Retained earnings	15,708		26,672
Accumulated other comprehensive loss	(14,052)		(25,695)
Noncontrolling interest	2,215		3,061
Total equity	877,053		844,501
Total Liabilities and Equity	$	1,838,110	$	1,668,179

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,
	2021		2020		2021		2020
Revenues:
Rental revenue	$	43,673	$	38,871	$	127,350	$	114,631
Restaurant revenue	7,033		4,097		19,374		11,696
Total revenues	50,706		42,968		146,724		126,327
Operating expenses:
General and administrative	4,262		3,741		13,490		11,303
Depreciation and amortization	8,831		7,523		25,455		21,670
Property expenses	1,453		838		3,657		2,539
Restaurant expenses	6,546		3,987		17,994		11,799
Total operating expenses	21,092		16,089		60,596		47,311
Interest expense	(8,311)		(7,410)		(24,328)		(21,732)
Other income	2		2		10		168
Realized gain on sale, net	—		—		431		—
Income tax expense	(97)		(67)		(231)		(192)
Net income	21,208		19,404		62,010		57,260
Net income attributable to noncontrolling interest	(44)		(55)		(129)		(180)
Net Income Available to Common Shareholders	$	21,164	$	19,349	$	61,881	$	57,080

Basic net income per share:	$	0.28	$	0.27	$	0.81	$	0.81
Diluted net income per share:	$	0.28	$	0.27	$	0.81	$	0.81
Weighted average number of common shares outstanding:
Basic	76,250,614		71,009,154		76,094,133		70,430,037
Diluted	76,360,526		71,230,481		76,222,167		70,658,500
Dividends declared per common share	$	0.3175	$	0.3050	$	0.9525	$	0.9150

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

FOUR CORNERS PROPERTY TRUST, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

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

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Net income	$	21,208	$	19,404	$	62,010	$	57,260
Other comprehensive income (loss):
Effective portion of change in fair value of derivative instruments	1,340		(19)		6,447		(27,934)
Reclassification adjustment of derivative instruments included in net income	1,748		1,380		5,220		2,570
Other comprehensive income (loss)	3,088		1,361		11,667		(25,364)
Comprehensive income	24,296		20,765		73,677		31,896
Less: comprehensive income attributable to noncontrolling interest
Net income attributable to noncontrolling interest	44		55		129		180
Other comprehensive income (loss) attributable to noncontrolling interest	6		4		24		(92)
Comprehensive income attributable to noncontrolling interest	50		59		153		88
Comprehensive Income Attributable to Common Shareholders	$	24,246	$	20,706	$	73,524	$	31,808

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, 2021


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

For the Nine Months Ended September 30, 2021


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

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

For the Three Months Ended September 30, 2020


	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Noncontrolling Interest		Total
	Shares	Par Value
Balance at June 30, 2020	70,333,387	$	7	$	690,389	$	33,292	$	(30,168)	$	3,912	$	697,432
Net income	—	—		—		19,349		—		55		19,404
Other comprehensive loss	—	—		—		—		1,357		4		1,361
Redemption of OP units	—	—		—		—		—		—		—
ATM proceeds, net of issuance costs	2,435,958	—		61,311		—		—		—		61,311
Dividends and distributions to equity holders	—	—		—		(22,164)		—		(61)		(22,225)
Stock-based compensation, net	—	—		868		—		—		—		868
Balance at September 30, 2020	72,769,345	$	7	$	752,568	$	30,477	$	(28,811)	$	3,910	$	758,151

For the Nine Months Ended September 30, 2020


	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Noncontrolling Interest		Total
	Shares	Par Value
Balance at December 31, 2019	70,020,660	$	7	$	686,181	$	38,401	$	(3,539)	$	5,691	$	726,741
Net income	—	—		—		57,080		—		180		57,260
Other comprehensive loss	—	—		—		—		(25,272)		(92)		(25,364)
Redemption of OP units	45,000	—		859		—		—		(1,672)		(813)
ATM proceeds, net of issuance costs	2,580,279	—		65,599		—		—		—		65,599
Dividends and distributions to equity holders	—	—		—		(65,004)		—		(197)		(65,201)
Stock-based compensation, net	123,406	—		(71)		—		—		—		(71)
Balance at September 30, 2020	72,769,345	$	7	$	752,568	$	30,477	$	(28,811)	$	3,910	$	758,151

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,
	2021		2020
Cash flows - operating activities
Net income	$	62,010	$	57,260
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	25,455		21,670
Gain on disposal of land, building, and equipment	(431)		—
Non-cash revenue adjustments	1,590		799
Amortization of financing costs	1,901		1,589
Stock-based compensation expense	3,092		2,496

Changes in assets and liabilities:
Derivative assets and liabilities	2,283		(8,049)
Straight-line rent adjustment	(5,775)		(6,519)
Rent received in advance	(1,197)		(628)
Intangible assets (lease incentive payments)	(815)		(4,167)
Other assets and liabilities	5,934		945
Net cash provided by operating activities	94,047		65,396
Cash flows - investing activities
Purchases of real estate investments	(195,105)		(123,466)
Proceeds from sale of real estate investments	3,343		—
Advance (refunds) deposits on acquisition of operating real estate	(148)		1,060
Net cash used in investing activities	(191,910)		(122,406)
Cash flows - financing activities
Net proceeds from ATM equity issuance	31,799		65,599

Proceeds from issuance of senior notes	100,000		125,000
Payment of deferred financing costs	(4,625)		(1,194)
Proceeds from revolving credit facility	148,500		158,500
Repayment of revolving credit facility	(105,500)		(210,500)
Payment of dividends to shareholders	(72,395)		(64,166)
Distributions to non-controlling interests	(137)		(197)
Redemption of non-controlling interests	—		(813)
Employee shares withheld for taxes	(3,034)		(2,567)
Net cash provided by financing activities	94,608		69,662
Net (decrease) increase in cash and cash equivalents, including restricted cash	(3,255)		12,652
Cash and cash equivalents, including restricted cash, at beginning of period	11,064		5,083
Cash and cash equivalents, including restricted cash, at end of period	$	7,809	$	17,735
Supplemental disclosures:
Interest paid	$	12,292	$	13,861
Income taxes paid	$	291	$	532
Operating lease payments received (lessor)	$	120,462	$	104,212
Operating lease payments remitted (lessee)	$	659	$	490
Non-cash activities:
Dividends declared but not paid	$	24,508	$	22,163
Change in fair value of derivative instruments	$	9,384	$	(17,315)

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 properties. Substantially all of our business is conducted through Four Corners Operating Partnership, LP (“FCPT OP”), a Delaware limited partnership of which we are the initial and substantial limited partner. Our wholly owned subsidiary, Four Corners GP, LLC (“FCPT GP”), is its sole general partner.

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

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

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

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Basis of Presentation

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

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

Use of Estimates

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Real Estate Investments, Net

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

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

Acquisition of Real Estate

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

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

Lease Intangibles

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

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

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

Impairment of Long-Lived Assets

Land, buildings and equipment and certain other assets, including definite-lived intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Such events and changes may include macroeconomic conditions, including those caused by global pandemics, like the recent coronavirus disease pandemic (“COVID-19”) and restrictions intended to prevent its spread, which may result in property operational disruption and indicate that the carrying amount may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to the future undiscounted net cash flows expected to be generated by the assets. Identifiable cash flows are measured at the lowest level for which they are largely independent of the cash flows of other groups of assets and liabilities, generally at the restaurant 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 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, 2021 or 2020.

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 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, 2021. There were two properties held for sale at December 31, 2020, which were sold during the nine months ended September 30, 2021 for a realized gain of $431 thousand.

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)	2021		2020
Cash and cash equivalents	$	7,809	$	11,064
Restricted cash (included in Other assets)	—		—
Total Cash, Cash Equivalents, and Restricted Cash	$	7,809	$	11,064

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

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

Leases

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

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

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

For leases where the Company is the lessor, we determine the classification upon commencement. At September 30, 2021, 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.

Rent Concessions

In April 2020, the FASB issued a question-and-answer document regarding accounting for lease concessions and other effects of COVID-19. The document clarifies that entities may elect not to evaluate whether lease-related relief that lessors provide to mitigate the economic effects of COVID-19 on lessees is a lease modification under ASC 842. Instead, an entity that elects not to evaluate whether a concession directly related to COVID-19 is a modification can then elect whether to apply the modification guidance (i.e., assume the relief was always contemplated by the contract or assume the relief was not contemplated by the contract).

During the second and third quarters of 2020, the Company agreed to lease concessions with certain tenants in response to COVID-19. These concessions resulted in a substantial increase in our rights as lessor, including receiving additional financial information, agreeing to extend the current term of the lease, enhancing the lease guarantee, or consenting to more favorable rent escalations in the future. As such, the Company accounted for these concessions as lease modifications under ASC 842. Rent deferrals agreed upon with respect to rent owed for the second quarter of 2020 were for approximately $1.0 million of contractual base rent as of June 30, 2020 and were fully repaid prior to December 31, 2020. In the third quarter of 2020, the Company agreed to rent abatements as part of lease amendments for concessions of the type described above and for lease payments due in the second quarter. These agreements for abatements represented approximately $1.6 million of rental revenue recognized in the second quarter of 2020. The receivables for these abatements were recorded as lease incentives in intangible lease assets, net on our Consolidated Balance Sheets and will be amortized as a reduction of revenue over the amended lease terms. As of October 28, 2021, the Company has not abated rent for the fourth quarter of 2020 or the nine months ended September 30, 2021.

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. During the year ended December 31, 2020, the Company paid lease incentives of $4.2 million to tenants. During the nine months ended September 30, 2021, the Company paid tenants $815 thousand for

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

tenant improvements which qualified as lease incentives under U.S. GAAP as the Company was determined not to be the accounting owner of the improvements.

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, 2021 and December 31, 2020, credit card receivables, included in other assets, totaled $80 thousand and $68 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.

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.

Gain on Sale, Net

The Company recognizes gain (loss) on sale, net 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 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

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.

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

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 March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform” which provides temporary optional expedients and exceptions to the guidance in US GAAP on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate (SOFR). The guidance simplifies the accounting for modifying countless contracts (including those in hedging relationships) that refer to LIBOR and other interbank offered rates. The guidance is effective upon issuance and generally can be applied to contract modifications or existing and new hedge relationships through December 31, 2022. The Company is currently evaluating the impact of this guidance on its cash flow hedges.

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 SOFR. Additionally, banking regulators are encouraging 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.

The Company has four currently effective interest rate swaps with a total notional amount of $350 million that are 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.

Alternative rates and other market changes related to the replacement of LIBOR, including the introduction of financial products and changes in market practices, may lead to risk modeling and valuation challenges, such as adjusting interest rate accrual calculations and building a term structure for an alternative rate.

The introduction of an alternative rate also may create additional basis risk and increased volatility as alternative rates are phased in and utilized in parallel with LIBOR.

NOTE 3 – CONCENTRATION OF CREDIT RISK

Our tenant base and the restaurant brands operating our properties are highly concentrated. With respect to our tenant base, Darden leases represent approximately 61% 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

We also are subject to concentration risk in terms of the restaurant brands that operate our properties. As of September 30, 2021, we had 309 Olive Garden branded locations in our portfolio, which comprise approximately 34% of our leased properties and approximately 45% of the revenues received under leases. Longhorn Steakhouse branded restaurants comprise approximately 13% of our leased properties and approximately 13% of the revenues received under leases as of September 30, 2021. Our properties, including the Kerrow Restaurant Operating Business, are located in 46 states, with concentrations of 10% or greater of total rental revenue in two states: Texas (approximately 11%) and Florida (approximately 10%).

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, 2021, our exposure to risk related to our derivative instruments totaled $8.6 million including accrued interest, and the counterparty to such instruments are investment grade financial institutions. Our credit risk exposure with regard to our cash and the $197.0 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)	2021		2020
Land	$	926,628	$	827,502
Buildings and improvements	1,274,952		1,192,722
Equipment	135,683		134,919
Total gross real estate investments	2,337,263		2,155,143
Less: Accumulated depreciation	(675,827)		(657,621)
Total real estate investments, net	1,661,436		1,497,522
Intangible lease assets, net	101,072		96,291
Total Real Estate Investments and Intangible Lease Assets, Net	$	1,762,508	$	1,593,813

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 are 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.

During the nine months ended September 30, 2020, the Company invested $121.4 million, including transaction costs, in 52 properties located in twenty states, and allocated the investment as follows: $65.6 million to land, $29.5 million to buildings and improvements, $0.1 million to equipment, and $25.9 million to intangible assets, including finance ROU 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, 2020. The Company did not dispose of any properties during the nine months ended September 30, 2020.

During the nine months ended September 30, 2020, the Company exercised its option to purchase three 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 $6.0 million.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

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.

The following tables detail intangible lease assets and liabilities.


	September 30,		December 31,
(In thousands)	2021		2020
Acquired in-place lease intangibles	$	77,748	$	63,848
Above-market leases	13,821		13,821
Finance leases - right of use asset (1)	24,383		25,607
Lease incentives	6,661		5,846
Direct lease costs	87		—
Total	122,700		109,122
Less: Accumulated amortization	(21,628)		(12,831)
Intangible Lease Assets, Net	101,072		$	96,291

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


	September 30,		December 31,
(In thousands)	2021		2020
Below-market leases	$	2,978	$	2,978
Less: Accumulated amortization	$	(935)	(613)
Intangible Lease Liabilities, Net	$	2,043	$	2,365

The value of acquired in-place leases amortized and included in depreciation and amortization expense was $2.5 million and $1.8 million for the three months ended September 30, 2021 and 2020, respectively, and $6.9 million and $4.4 million for the nine months ended September 30, 2021 and 2020, respectively. The value of above-market and below-market leases amortized as an adjustment to revenue was $405 thousand and $363 thousand for the three months ended September 30, 2021 and 2020, respectively, and $1.2 million and $750 thousand for the nine months ended September 30, 2021 and 2020, respectively. For the three months ended September 30, 2021 and 2020, lease incentive amortization was $81 thousand and $48 thousand, respectively, and $242 thousand and $48 thousand for the nine months ended September 30, 2021 and 2020, respectively.

At September 30, 2021, the total weighted average amortization period remaining for our intangible lease assets and liabilities was 9.0 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 8.8 years, 7.6 years, 9.5 years and 13.6 years, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

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, 2021.



(In thousands)	September 30,
2021 (three months)	$	3,080
2022	11,955
2023	10,049
2024	8,647
2025	7,133
Thereafter	27,568
Total Future Amortization	$	68,432

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, 2021, maturities of operating lease liabilities were as follows:


(In thousands)	September 30,
2021 (three months)	$	172
2022	693
2023	705
2024	718
2025	470
Thereafter	5,381
Total Payments	8,139
Less: Interest	(2,408)
Operating Lease Liability	$	5,731

The weighted-average discount rate for operating leases at September 30, 2021 was 4.13%. The weighted-average remaining lease term was 16.6 years.

Rental expense was $218 thousand and $222 thousand for the three months ended September 30, 2021 and 2020, respectively. Rental expense was $667 thousand and $542 thousand for the nine months ended September 30, 2021 and 2020, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

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, 2021 and 2020.


	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2021		2020		2021		2020
Lease revenue - operating leases	$	42,623	$	38,271	124,599		112,899
Variable lease revenue (tenant reimbursements)	1,050		600		2,751		1,732
Total Rental Revenue	$	43,673	$	38,871	$	127,350	$	114,631

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,
2021 (three months)	$	42,514
2022	171,134
2023	171,410
2024	171,073
2025	169,685
Thereafter	1,056,667
Total Future Minimum Lease Payments	$	1,782,483

Ground Leases as Lessee

As of September 30, 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 62 years to 98 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 95 years at September 30, 2021.

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

At September 30, 2021, our long-term debt consisted of (1) $400 million of non-amortizing term loans and (2) $450 million of senior, unsecured, fixed rate notes. At December 31, 2020, our long-term debt consisted of (1) $400 million of non-amortizing term loans and (2) $350 million of senior, unsecured, fixed rate notes. At September 30, 2021 and December 31, 2020, the outstanding borrowings under the revolving credit facility were $53 million and $10 million, respectively, and there were no outstanding letters of credit. The revolving credit facility portion will mature on November 9, 2025 with a six month extension option.

Revolving Credit and Term Loan Agreement

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Agreement, $150 million principal amount outstanding under the Company's term loan facility was scheduled to mature on November 9, 2022; $150 million principal amount outstanding was scheduled to mature on November 9, 2023; $100 million was scheduled to mature on March 9, 2024; and the $250 million revolving credit facility was scheduled to mature on November 9, 2021, with two six-month extension options.

The Loan Agreement provides for borrowings of up to $650 million and consists of (1) a revolving credit facility in an aggregate principal amount of $250 million and (2) a term loan facility in an aggregate principal amount of $400 million comprised of (i) a $50 million term credit facility with a maturity date of November 9, 2023, (ii) a $100 million term credit facility with a maturity date of March 9, 2024, (iii) a $150 million term credit facility with a maturity date of November 9, 2025, and (iv) a $100 million term credit facility with a maturity date of November 9, 2026. No amortization payments are required on the term loan prior to the maturity date. The Borrower has the option to extend the maturity date of the revolving credit facility for up to six months, subject to the payment of an extension fee of 0.0625% on the aggregate amount of the then-outstanding revolving commitment. The Loan Agreement is a syndicated credit facility that contains an accordion feature allowing the facility to be increased by an additional aggregate amount not to exceed $350 million, subject to certain conditions. Amounts owed under the Loan Agreement may be prepaid at any time without premium or penalty, subject to customary breakage costs in the case of borrowings with respect to which a LIBOR rate election is in effect.

Loans under the Loan Agreement accrue interest at a per annum rate equal to, at the Borrower’s election, either a LIBOR rate plus a margin of 1.25% to 2.00%, or a base rate determined according to a prime rate or federal funds rate plus a margin of 0.25% to 1.00%. In each case, the margin is determined according to, at the Borrower’s election, either (1) the Company’s total leverage ratio in effect from time to time, or (2) at any time after the Company has received an investment grade rating from either Moody’s Investors Service, Inc. or Standard & Poor’s Ratings Services on its senior, unsecured, long-term indebtedness, the credit rating applicable from time to time with respect to such indebtedness. In the event that all or a portion of the principal amount of any loan borrowed pursuant to the Loan Agreement is not paid when due, interest will accrue at the rate that would otherwise be applicable thereto plus 2.00%. So long as the Company continues to determine pricing according to its total leverage ratio, a facility fee at a rate of 0.15% to 0.30% per annum depending on the Company’s total leverage ratio, applies to the total revolving commitments available under the Loan Agreement.

The Loan Agreement contains customary affirmative and negative covenants that, among other things, require customary reporting obligations, contain obligations to maintain REIT status, and restrict, subject to certain exceptions, incurrence of debt, incurrence of secured debt, the ability of the Borrower and the guarantors to enter into mergers, consolidations, sales of assets and similar transactions, limitations on distributions and other restricted payments, and limitations on transactions with affiliates. In addition, the Borrower will be subject to the following financial covenants: (1) Total Indebtedness to Consolidated Capitalization Value (each as defined in the Loan Agreement) not to exceed 60%, (2) mortgage-secured leverage ratio not to exceed 40%, (3) total secured recourse indebtedness not to exceed 5% of consolidated capitalization value, (4) minimum fixed charge coverage ratio of 1.50 to 1.00, (5) minimum consolidated tangible net worth, (6) maximum unencumbered leverage ratio not to exceed 60% and (7) minimum unencumbered interest coverage ratio not less than 1.75 to 1.00.

The Loan Agreement contains customary events of default including, among other things, payment defaults, breach of covenants, cross acceleration to material indebtedness, bankruptcy-related defaults, judgment defaults, and the occurrence of certain change of control events. The occurrence of an event of default will limit the ability of the Company and the Borrower to make distributions and may result in the termination of the credit facility, acceleration of repayment obligations and the exercise of remedies by the Lenders with respect to the collateral.

We reviewed the term loan and revolving debt arrangements by lender and accounted for the term loan and revolving credit facility amendment in accordance with U.S. GAAP. This resulted in the capitalization of $3.6 million in new lender fees and third party costs, which will be amortized over the life of the new loans; $123 thousand in third-party fees were recorded to general and administrative expense. Where there were decreases in principal, $365 thousand of unamortized deferred financing costs were written off and recorded as interest expense. The remaining $2.2 million of original unamortized deferred financing costs will be amortized over the life of the new loans.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

The following table presents the Term Loan balances as of September 30, 2021 and December 31, 2020.


				Outstanding Balance
	Maturity	Interest		September 30,		December 31,
(Dollars in thousands)	Date	Rate		2021		2020
Term Loans:
Term loan due 2022	Nov 2022	N/A	(a)	$	—	$	150,000
Term loan due 2023	Nov 2023	1.33%	(a)	50,000		150,000
Term loan due 2024	Mar 2024	1.33%	(a)	100,000		100,000
Term loan due 2025	Nov 2025	1.38%	(a)	150,000		—
Term loan due 2026	Nov 2026	1.38%	(a)	100,000		—
Total Term Loans				$	400,000	$	400,000
(a) Loan is a variable‑rate loan which resets monthly at one-month LIBOR + the applicable credit spread of 1.25% to 1.30% at September 30, 2021.

Note Purchase Agreement

On February 25, 2021, the Company entered into agreements to issue $100 million of senior unsecured notes. The notes consist of $50 million of notes with an eight-year term, which were issued on April 27, 2021 and mature on April 30, 2029, and priced at a fixed interest rate of 2.74%, and $50 million of notes with a ten-year term, which were issued on April 27, 2021, and mature on April 29, 2031, and priced at a fixed interest rate of 2.99%. These notes were issued at par value.

The following table presents the senior unsecured fixed rate notes balance as of September 30, 2021 and December 31, 2020.


				Outstanding Balance
	Maturity	Interest		September 30,		December 31,
(Dollars in thousands)	Date	Rate		2021		2020
Notes Payable:
Senior unsecured fixed rate note, issued June 2017	Jun 2024	4.68	%	$	50,000	$	50,000
Senior unsecured fixed rate note, issued June 2017	Jun 2027	4.93	%	75,000		75,000
Senior unsecured fixed rate note, issued December 2018	Dec 2026	4.63	%	50,000		50,000
Senior unsecured fixed rate note, issued December 2018	Dec 2028	4.76	%	50,000		50,000
Senior unsecured fixed rate note, issued March 2020	Jun 2029	3.15	%	50,000		50,000
Senior unsecured fixed rate note, issued March 2020	Apr 2030	3.20	%	75,000		75,000
Senior unsecured fixed rate note, issued April 2021	Apr 2029	2.74	%	50,000		—
Senior unsecured fixed rate note, issued April 2021	Apr 2031	2.99	%	50,000		—
Total Notes				$	450,000	$	350,000

Deferred Financing Costs

At September 30, 2021 and December 31, 2020, net unamortized deferred financing costs were approximately $8.8 million and $6.1 million, respectively. During the three months ended September 30, 2021 and 2020, amortization of deferred financing costs was $468 thousand and $543 thousand, respectively. During the nine months ended September 30, 2021 and 2020, amortization of deferred financing costs was $1.9 million and $1.6 million, respectively. The amortization of deferred financing costs for the nine months ended September 30, 2021, includes a one-time charge of $364 thousand for deferred financing costs expensed as a result of the execution of the Loan Agreement on June 4, 2021. The weighted average interest rate on the term loans before consideration of the interest rate hedge described below was 1.36% and 1.44% at September 30, 2021 and December 31, 2020, respectively. The weighted average interest rate on the revolving credit facility was 1.60% at December 31, 2020.

The Company was in compliance with all debt covenants at September 30, 2021.

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, 2021 and 2020, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt.

As of September 30, 2021 and December 31, 2020, $350 million of our variable-rate debt is hedged by swaps with notional values totaling $350 million.

During the first quarter of 2021, we entered into one cash flow hedge in connection with the issuance of $100 million of notes by the Company in April 2021. The Company terminated three cash flow hedges in connection with the $100 million private note offering that was entered into on February 25, 2021 and closed in April 2021. The first hedge was an interest rate swap that had a fixed notional value of $25 million entered into on September 29, 2020 with an effective date of May 4, 2021 and a maturity date of May 4, 2031, where the fixed rate paid by the Company was 0.7516% and the variable rate received reset monthly to the three-month LIBOR rate. The second hedge was an interest rate swap that had a fixed notional value of $25 million entered into on October 9, 2020 with an effective date of May 4, 2021 and a maturity date of May 4, 2031, where the fixed rate paid by the Company was 0.8878% and the variable rate received reset monthly to the three-month LIBOR rate. The third hedge was an interest rate swap that had a fixed notional value of $25 million entered into on January 15, 2021 with an effective date of February 16, 2021 and a maturity date of February 15, 2031, where the fixed rate paid by the Company was 1.1165% and the variable rate received reset monthly to the three-month LIBOR rate. The swaps were terminated on January 29, 2021 for approximately a $1.7 million gain which will be amortized over the next 10 years as 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 $6.9 million will be reclassified to earnings as an increase to interest expense.

Non-designated Hedges

We do not use derivatives for trading or speculative purposes. During the nine months ended September 30, 2021 and 2020, we did not have any derivatives that were not designated as cash flow hedges for accounting purposes.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

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, 2021 and December 31, 2020.


	Derivative Assets					Derivative Liabilities
	Balance Sheet Location	Fair Value at				Balance Sheet Location	Fair Value at
(Dollars in thousands)		September 30, 2021		December 31, 2020			September 30, 2021		December 31, 2020
Derivatives designated as hedging instruments:
Interest rate swaps	Derivative assets	$	2,994	$	762	Derivative liabilities	$	11,565	$	18,717
Total		$	2,994	$	762		$	11,565	$	18,717

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, 2021 and 2020.


(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, 2021	$	1,340	Interest expense	$	1,748	$	(8,311)
Three months ended September 30, 2020	(19)		Interest expense	1,380		(7,410)
Nine months ended September 30, 2021	6,447		Interest expense	5,220		(24,328)
Nine months ended September 30, 2020	(27,934)		Interest expense	2,570		(21,732)

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, 2021 and December 31, 2020. 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, 2021	$	2,994	$	—	$	2,994	$	(951)	$	—	$	2,043
December 31, 2020	762		—		762		(634)		—		128

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)


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, 2021	$	11,565	$	—	$	11,565	$	(951)	$	—	$	10,614
December 31, 2020	18,717		—		18,717		(634)		—		18,083

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, 2021 and December 31, 2020, the fair value of derivatives related to these agreements was approximately $8.6 million and $18.0 million in net liabilities, respectively. As of September 30, 2021, we have not posted any collateral related to these agreements. If we or our counterparty had breached any of these provisions at September 30, 2021, we could have been required to settle our obligations under the agreements at their termination value of approximately $8.6 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)	2021		2020
Operating lease right-of-use asset	$	5,040	$	5,397
Prepaid acquisition costs and deposits	3,545		3,159
Prepaid assets	718		1,134
Accounts receivable	992		1,035
Food and beverage inventories	186		183

Other	729		931
Total Other Assets	$	11,210	$	11,839

Other Liabilities

The components of other liabilities were as follows:


	September 30,		December 31,
(In thousands)	2021		2020
Operating lease liability	$	5,731	$	6,058
Accrued interest expense	6,509		1,597
Intangible lease liabilities, net	2,043		2,365
Accrued compensation	1,991		2,005
Accounts payable	328		376
Accrued operating expenses	155		223
Other	3,344		2,475
Total Other Liabilities	$	20,101	$	15,099

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

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, 2021 and 2020, we recorded income tax expense of $97 thousand and $67 thousand, respectively. During the nine months ended September 30, 2021 and 2020, we recorded income tax expense of $231 thousand and $192 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. Based on an assessment of all factors, including historical losses of the Kerrow Restaurants Operating Business, it was determined that full valuation allowances were required on the net deferred tax assets as of September 30, 2021. Changes in estimates of deferred tax asset realizability are included in "Income tax expense" in the Consolidated Statements of Income.

NOTE 10 – EQUITY

Preferred Stock

At September 30, 2021 and December 31, 2020, 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, 2021 and December 31, 2020.

Common Stock

At September 30, 2021 and December 31, 2020, the Company was authorized to issue 500,000,000 shares, $0.0001 par value per share of common stock. At September 30, 2021, there were 77,245,726 shares of the Company's common stock issued and outstanding.

On March 8, 2021, we declared a dividend of $0.3175 per share, which was paid in April 2021 to common stockholders of record as of March 31, 2021.

On June 14, 2021, we declared a dividend of $0.3175 per share, which was paid in July 2021 to common stockholders of record as of June 30, 2021.

On September 27, 2021, we declared a dividend of $0.3175 per share, which was paid in October 2021 to common stockholders of record as of October 7, 2021.

Common Stock Issuance Under the At-The-Market Program

In December 2016, the Company established an “At-the-Market” (“ATM”) equity issuance program (the “prior ATM program”) under which the Company may, at its discretion, issue and sell its common stock through ATM offerings on the New York Stock Exchange through broker-dealers. On March 22, 2019, the Company amended the prior ATM program to, among other things, increase the maximum sales under ATM offerings to $210 million and provide that such sales could be made through the sales agents, as the Company’s agents or, if applicable, as forward sellers for forward purchasers. On February 24, 2021, the Company terminated the prior ATM program and entered into a new ATM program (the “current ATM program” and together with the prior ATM program, the “ATM programs”), which provides for the offer and sale of the shares of the

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Company’s common stock having an aggregate gross sales price of up to $350 million. In connection with the Company’s ATM program, the Company may enter into forward sale agreements with certain financial institutions acting as forward purchasers whereby, at the Company's discretion, the forward purchasers may borrow and sell shares of common stock. The use of forward sale agreements allows the Company to lock in a share price on the sale of shares of common stock at the time the respective forward sale agreements are executed but defer settling the forward sale agreements and receiving the proceeds from the sale of shares until a later date.

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

During the three months ended September 30, 2020, the Company issued 2,435,958 shares under the prior ATM program at a weighted average share price of $25.65 for net proceeds of $61.3 million. During the nine months ended September 30, 2020, the Company issued 2,580,279 shares under the prior ATM program at a weighted average share price of $25.93 for net proceeds of $65.6 million.

At September 30, 2021, there was $322.3 million available for issuance under the current ATM program.

Noncontrolling Interest

At September 30, 2021, there were 114,559 FCPT Operating Partnership Units (“OP units”) outstanding held by third parties. During the nine months ended September 30, 2021, FCPT OP did not issue any OP units for consideration in real estate transactions. Generally, OP units participate in net income allocations and distributions and entitle their holder the right, subject to the terms set forth in the partnership agreement, to require FCPT OP to redeem all or a portion of the OP units held by such limited partner. At FCPT OP’s option, it may satisfy this redemption with cash or by exchanging non-registered shares of FCPT common stock on a one-for-one basis. Prior to the redemption of OP units, the limited partners participate in net income allocations and distributions in a manner equivalent to the common stockholders. The redemption value of outstanding non-controlling interest OP units was $3.1 million and $4.7 million as of September 30, 2021 and December 31, 2020, respectively.

At September 30, 2021, FCPT was the owner of approximately 99.85% of FCPT’s OP units. The remaining 0.15%, or 114,559 of FCPT’s OP units were held by unaffiliated limited partners. During the nine months ended September 30, 2021, FCPT OP distributed $137 thousand to its limited partners and settled redemptions of 44,833 OP units for shares of common stock.

Earnings Per Share

The following table presents the computation of basic and diluted net earnings per common share for the three and nine months ended September 30, 2021 and 2020.


(In thousands except for shares and per share data)	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Average common shares outstanding – basic	76,250,614		71,009,154		76,094,133		70,430,037
Net effect of dilutive equity awards	109,912		221,327		128,034		228,463
Average common shares outstanding – diluted	76,360,526		71,230,481		76,222,167		70,658,500
Net income available to common shareholders	$	21,164	$	19,349	$	61,881	$	57,080
Basic net earnings per share	$	0.28	$	0.27	$	0.81	$	0.81
Diluted net earnings per share	$	0.28	$	0.27	$	0.81	$	0.81

For the three months ended September 30, 2021 and 2020, the number of outstanding equity awards that were anti-dilutive totaled 192,151 and 216,773, respectively. For the nine months ended September 30, 2021 and 2020, the number of outstanding equity awards that were anti-dilutive totaled 174,029 and 209,637, respectively.

Exchangeable OP units have been omitted from the denominator for the purpose of computing diluted earnings per share since FCPT OP, at its option, may satisfy a redemption with cash or by exchanging non-registered shares of FCPT common

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

stock. The weighted average exchangeable OP units outstanding for the three months ended September 30, 2021 and 2020 was 158,905 and 204,392, respectively. The weighted average exchangeable OP units outstanding for the nine months ended September 30, 2021 and 2020 was 159,228 and 221,355, respectively.

NOTE 11 – STOCK-BASED COMPENSATION

On October 20, 2015, the Board of Directors of FCPT adopted, and FCPT’s sole stockholder at such time, Rare Hospitality International, Inc., approved, the Four Corners Property Trust, Inc. 2015 Omnibus Incentive Plan (the “Plan”). The Plan provides for the grant of awards of nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, deferred stock units, unrestricted stock, dividend equivalent rights, performance shares and other performance-based awards, other equity-based awards, and cash bonus awards to eligible participants. Subject to adjustment, the maximum number of shares of stock reserved for issuance under the Plan is equal to 2,100,000 shares.

At September 30, 2021, 696,994 shares of common stock were available for award under the Plan. The unamortized compensation cost of awards issued under the Plan totaled approximately $5.1 million at September 30, 2021 as shown in the following table.


(In thousands)	Restricted Stock Units		Restricted Stock Awards		Performance Stock Awards		Total
Unrecognized compensation cost at January 1, 2021	$	1,755	$	1,522	$	1,342	$	4,619
Equity grants	1,383		2,394		—		3,777
Equity grant forfeitures	(25)		(109)		(27)		(161)
Equity compensation expense	(963)		(1,642)		(487)		(3,092)
Unrecognized Compensation Cost at September 30, 2021	$	2,150	$	2,165	$	828	$	5,143

At September 30, 2021, the weighted average amortization period remaining for all of our equity awards was 2.0 years.

Restricted Stock Units

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

At September 30, 2021 and December 31, 2020, there were 159,524 and 137,585 RSUs outstanding, respectively. During the three months ended September 30, 2021, there were no shares of restricted stock granted, 582 RSUs vested, and 865 RSUs were forfeited. During the nine months ended September 30, 2021, there were 49,390 shares of restricted stock granted, 26,586 RSUs vested, and 865 RSUs were forfeited. Restrictions on these RSUs lapse through 2026.

Restricted Stock Awards

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

At September 30, 2021 and December 31, 2020, there were 116,505 and 102,355 RSAs outstanding, respectively. During the three months ended September 30, 2021, there were no shares of restricted stock granted, 2,053 shares forfeited, and no restrictions on RSAs lapsed and were distributed. During the nine months ended September 30, 2021, there were 87,664 shares of restricted stock granted, 3,882 shares forfeited, and restrictions on 69,632 RSAs lapsed and were distributed, of which 35,551 RSAs were designated for tax withholdings. Restrictions on these RSAs lapse through 2024. The Company expects all RSAs to vest.

Performance-Based Restricted Stock Awards

At September 30, 2021 and December 31, 2020, the target number of PSUs that were unvested was 208,481 and 202,706, respectively. During the three months ended September 30, 2021, no PSUs were granted or vested and 1,992 PSUs were forfeited. During the nine months ended September 30, 2021, PSUs with a target number of 75,476 shares were granted and PSUs with a target number of 67,709 shares vested. The total shareholder return calculated for these PSUs resulted in a distribution of 200% of target shares, resulting in the distribution of 135,418 shares, of which 75,194 were withheld for tax.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

The performance period of the unvested grants run from January 1, 2021 through December 31, 2023, from January 1, 2020 through December 31, 2022, and from January 1, 2019 through December 31, 2021. Pursuant to the PSU award agreement, each participant is eligible to vest in and receive shares of the Company's common stock based on the initial target number of shares granted multiplied by a percentage range between 0% and 200%. The percentage range is based on the attainment of a combination of relative shareholder return and total shareholder return of the Company compared to certain specified peer groups of companies during the performance period. The grant date fair values of PSUs were determined through Monte-Carlo simulations using the following assumptions: our common stock closing price at the grant date, the average closing price of our common stock price for the 20 trading days prior to the grant date and a range of performance-based vesting based on estimated total stockholder return over a three year performance period. For the 2021 PSU grant, the Company used an implied volatility assumption of 49.0% (based on historical volatility), normalized risk free rate of 2.50%, and a 0% dividend yield (the mathematical equivalent to reinvesting the dividends over the three-year performance period as is consistent with the terms of the PSUs), which resulted in a grant date fair value of zero.

Based on the grant date fair value, the Company expects to recognize $0.5 million in compensation expense on a straight-line basis over the remaining requisite service period associated with the unvested PSU awards.

NOTE 12 – FAIR VALUE MEASUREMENTS

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

Assets and Liabilities Measured at Fair Value on a Recurring Basis

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


September 30, 2021
(In thousands)	Level 1		Level 2		Level 3		Total
Assets
Derivative assets	$	—	$	2,994	$	—	$	2,994
Liabilities
Derivative liabilities	$	—	$	11,565	$	—	$	11,565


December 31, 2020
(In thousands)	Level 1		Level 2		Level 3		Total
Assets
Derivative assets	$	—	$	762	$	—	$	762
Liabilities
Derivative liabilities	$	—	$	18,717	$	—	$	18,717

Derivative Financial Instruments

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

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

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

Although we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by ourselves and our counterparties. We have determined that the significance of the impact of the credit valuation adjustments made to our derivative contracts, which determination was based on the fair value of each individual contract, was not significant to the overall valuation. As a result, all of our derivatives held at September 30, 2021, and December 31, 2020 were classified as Level 2 of the fair value hierarchy.

Fair Value of Certain Financial Liabilities

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


	September 30, 2021
(In thousands)	Carrying Value(1)		Fair Value
Term loan due 2023	$	50,000	$	50,295
Term loan due 2024	100,000		100,590
Term loan due 2025	150,000		151,934
Term loan due 2026	100,000		101,417
Senior fixed note due June 2024	50,000		54,974
Senior fixed note due June 2027	75,000		86,944
Senior fixed note due June 2026	50,000		57,011
Senior fixed note due June 2028	50,000		58,301
Senior fixed note due June 2029	50,000		52,917
Senior fixed note due April 2030	75,000		79,437
Senior fixed note due April 2029	50,000		51,751
Senior fixed note due April 2031	50,000		52,217
Revolving credit facility	53,000		53,332

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)


	December 31, 2020
(In thousands)	Carrying Value(1)		Fair Value
Term loan due 2022	$	150,000	$	150,992
Term loan due 2023	150,000		150,980
Term loan due 2024	100,000		100,740
Senior fixed note due June 2024	50,000		55,802
Senior fixed note due June 2027	75,000		89,547
Senior fixed note due June 2026	50,000		58,694
Senior fixed note due June 2028	50,000		60,394
Senior fixed note due June 2029	50,000		54,995
Senior fixed note due April 2030	75,000		82,238
Revolving credit facility	10,000		10,069

(1) Carrying values exclude deferred financing costs

NOTE 13 – COMMITMENTS AND CONTINGENCIES

Litigation

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

NOTE 14 – SEGMENTS

During the three and nine months ended September 30, 2021 and 2020, we operated in two segments: real estate operations and restaurant operations. Our segments are based on our organizational and management structure, which aligns with how our results are monitored and performance is assessed. Expenses incurred at our corporate office are allocated to real estate operations. The accounting policies of the reportable segments are the same as those described in Note 2 - Summary of Significant Accounting Policies.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

The following tables present financial information by segment for the three and nine months ended September 30, 2021 and 2020.

Three Months Ended September 30, 2021


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

Income tax expense	(46)		(51)		—		(97)
Net Income	$	21,365	$	(157)	$	—	$	21,208

Three Months Ended September 30, 2020


(In thousands)	Real Estate Operations		Restaurant Operations		Intercompany		Total
Revenues:
Rental revenue	$	38,871	$	—	$	—	$	38,871
Intercompany rental revenue	136		—		(136)		—
Restaurant revenue	—		4,097		—		4,097
Total revenues	39,007		4,097		(136)		42,968
Operating expenses:
General and administrative	3,741		—		—		3,741
Depreciation and amortization	7,405		118		—		7,523
Property expenses	838		—		—		838
Restaurant expenses	—		4,123		(136)		3,987
Total operating expenses	11,984		4,241		(136)		16,089
Interest expense	(7,410)		—		—		(7,410)
Other income	2		—		—		2

Income tax expense	(40)		(27)		—		(67)
Net Income (Loss)	$	19,575	$	(171)	$	—	$	19,404

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Nine Months Ended September 30, 2021


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

Nine Months Ended September 30, 2020


(In thousands)	Real Estate Operations		Restaurant Operations		Intercompany		Total
Revenues:
Rental revenue	$	114,631	$	—	$	—	$	114,631
Intercompany rental revenue	408		—		(408)		—
Restaurant revenue	—		11,696		—		11,696
Total revenues	115,039		11,696		(408)		126,327
Operating expenses:
General and administrative	11,303		—		—		11,303
Depreciation and amortization	21,294		376		—		21,670
Property expenses	2,539		—		—		2,539
Restaurant expenses	—		12,207		(408)		11,799
Total operating expenses	35,136		12,583		(408)		47,311
Interest expense	(21,732)		—		—		(21,732)
Other income	168		—		—		168

Income tax expense	(114)		(78)		—		(192)
Net Income (Loss)	$	58,225	$	(965)	$	—	$	57,260

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

The following tables present supplemental information by segment at September 30, 2021 and December 31, 2020.

Supplemental Segment Information at September 30, 2021


(In thousands)	Real Estate Operations		Restaurant Operations		Total
Total real estate investments	$	2,317,177	$	20,086	$	2,337,263
Accumulated depreciation	(670,848)		(4,979)		(675,827)
Total real estate investments, net	1,646,329		15,107		1,661,436
Cash and cash equivalents	6,733		1,076		7,809
Total assets	1,817,846		20,264		1,838,110
Long-term debt, net of deferred financing costs	894,154		—		894,154

Supplemental Segment Information at December 31, 2020


(In thousands)	Real Estate Operations		Restaurant Operations		Total
Total real estate investments	$	2,138,466	$	16,677	$	2,155,143
Accumulated depreciation	(652,070)		(5,551)		(657,621)
Total real estate investments, net	1,486,396		11,126		1,497,522
Cash and cash equivalents	10,517		547		11,064
Total assets	1,651,878		16,301		1,668,179
Long-term debt, net of deferred financing costs	753,878		—		753,878

NOTE 15 – SUBSEQUENT EVENTS

The Company reviewed its subsequent events and transactions that have occurred after September 30, 2021, the date of the Consolidated Balance Sheet, through October 28, 2021 and noted the following:

Acquisitions

Through October 28, 2021, the Company invested $10.7 million in the acquisition of five net lease properties with an investment yield of approximately 6.4%, and approximately 16.8 years of lease term remaining. The Company funded the acquisitions with cash on hand and proceeds from its revolving credit facility. The Company anticipates accounting for these transactions as asset acquisitions in accordance with U.S. GAAP. There were no contingent liabilities associated with these transactions at September 30, 2021.

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

Forward-Looking Statements

Statements contained in this Quarterly Report on Form 10-Q, including the documents that are incorporated by reference, that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). Also, when Four Corners Property Trust, Inc. (the “Company”) uses any of the words “anticipate,” “assume,” “believe,” “estimate,” “expect,” “intend,” or similar expressions, Four Corners Property Trust, Inc. is making forward-looking statements. Although management believes that the expectations reflected in such forward-looking statements are based upon present expectations and reasonable assumptions, actual results could differ materially from those set forth in the forward-looking statements. Certain factors that could cause actual results or events to differ materially from those anticipated or projected are described in the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020, as such factors may be updated from time to time in our periodic filings with the Securities and Exchange Commission. One of the most significant of such factors is the potential adverse effect of the current pandemic of the novel coronavirus, or COVID-19, on the financial condition, results of operations, cash flows and performance of the Company and its tenants, the real estate market and the global economy and financial markets. The extent to which COVID-19 impacts the Company and its tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. Moreover, you should interpret many of the risks identified in this report, as well as the risks set forth below, as being heightened as a result of the ongoing and numerous adverse impacts of COVID-19.

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

The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes included in the Annual Report on Form 10-K of Four Corners Property Trust, Inc. for the year ended December 31, 2020. Any references to “FCPT,” “the Company,” “we,” “us,” or “our” refer to Four Corners Property Trust, Inc. as an independent, publicly traded, self-administered company.

Overview

We are a Maryland corporation and a real estate investment trust (“REIT”) which owns, acquires and leases properties for use in the restaurant and retail industries. Substantially all of our business is conducted through Four Corners Operating Partnership, LP (“FCPT OP”), a Delaware limited partnership of which we are a majority limited partner and our wholly owned subsidiary, Four Corners GP, LLC (“FCPT GP”), is its sole general partner. We believe that we have operated in conformity with the requirements for qualification and taxation as a REIT for the taxable year ended December 31, 2020, and we intend to continue to operate in a manner that will enable us to maintain our qualification as a REIT.

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

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

During the nine months ended September 30, 2021, FCPT acquired 89 properties for a total investment value of $192.8 million, including transaction costs. These properties are 100% occupied under net leases with a weighted average remaining lease term of 9.3 years. The Company also invested $2.3 million in the construction of a Longhorn Steakhouse for the Kerrow Restaurant Operating Business, which opened in April 2021.

At September 30, 2021, our lease portfolio had the following characteristics:

•886 properties located in 46 states and representing an aggregate leasable area of 5.8 million square feet;

•99.8% occupancy (based on leasable square footage);

•An average remaining lease term of 9.6 years (weighted by annualized base rent); and

•An average annual rent escalation of 1.40% through December 31, 2030 (weighted by annualized base rent).

COVID-19

We are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business, including how it will impact our tenants. The outbreak continues to significantly and adversely impact economic activity in many areas of the United States, including where we own properties and where our headquarters are located. Our managed restaurants and certain of our tenants have experienced and continue to experience operational challenges as a result of the COVID-19 pandemic, which has had, and we anticipate will continue to have, an impact on our and their financial condition, results of operations, liquidity and creditworthiness. The situation surrounding the COVID-19 pandemic remains fluid, and we continue to actively manage our response in collaboration with tenants, government officials and business partners and assess potential impacts to our financial position and operating results, as well as potential adverse developments to our business. During the last few months, several vaccines for COVID-19 received FDA approval and are currently being administered across the country. Despite growing vaccination rates, we believe COVID-19 will continue to impact the normal operations for our tenants and our managed restaurants. The continued impact of the pandemic on our and our tenants' businesses is largely dependent on efforts to stem the spread of COVID-19, including governmental efforts to distribute vaccines and overall vaccination rates in the areas in which we own and manage properties. For further information regarding the impact of COVID-19 on the Company, see Part II, Item 1A titled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020.

We have collected over 99% of our portfolio’s contractual base rent for the nine months ended September 30, 2021. Rent deferrals agreed to for rent owed for second quarter of 2020 were for approximately $1.0 million of contractual base rent as of June 30, 2020 and were fully repaid prior to December 31, 2020. In the third quarter of 2020, the Company agreed to rent abatements as part of lease amendments for concessions of the type described above and for lease payments due in the second quarter. These agreements for abatements represented approximately $1.6 million of rental revenue recognized in the second quarter of 2020. During the third quarter of 2020, the receivables for abatements were recorded as lease incentives and will be amortized as a reduction to revenue over the amended lease terms. The Company did not agree to any rent deferrals during the fourth quarter of 2020 or the nine months ended September 30, 2021.

Results of Operations

During the three and nine months ended September 30, 2021 and 2020, we operated in two segments: real estate operations and restaurant operations. The following discussion includes the results of our operations for the three and nine months ended September 30, 2021 and 2020 as summarized in the table below:


	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2021		2020		2021		2020
Revenues:
Rental revenue	$	43,673	$	38,871	$	127,350	$	114,631
Restaurant revenue	7,033		4,097		19,374		11,696
Total revenues	50,706		42,968		146,724		126,327
Operating expenses:
General and administrative	4,262		3,741		13,490		11,303
Depreciation and amortization	8,831		7,523		25,455		21,670
Property expenses	1,453		838		3,657		2,539
Restaurant expenses	6,546		3,987		17,994		11,799
Total operating expenses	21,092		16,089		60,596		47,311
Interest expense	(8,311)		(7,410)		(24,328)		(21,732)
Other income	2		2		10		168
Realized gain on sale, net	—		—		431		—
Income tax expense	(97)		(67)		(231)		(192)
Net income	21,208		19,404		62,010		57,260
Net income attributable to noncontrolling interest	(44)		(55)		(129)		(180)
Net Income Attributable to Common Shareholders	$	21,164	$	19,349	$	61,881	$	57,080

Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020

Real Estate Operations

Rental Revenue

Rental revenue increased $4.8 million, or 12.4%, during the three months ended September 30, 2021 compared to the three months ended September 30, 2020. This increase was due primarily to the net acquisition of 135 leased properties, during the year-over-year period from October 1, 2020 through September 30, 2021. During the three months ended September 30, 2021, we recognized variable lease revenue, including costs paid by the lessor and reimbursed by the lessees within rental revenue of $1,050 thousand as compared to $600 thousand during the three months ended September 30, 2020. These amounts are also recognized in property expenses.

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

General and Administrative Expenses

General and administrative expense is comprised of costs associated with staff, office rent, legal, accounting, information technology, and other professional services and other administrative services in association with our real estate operations and our REIT structure and reporting requirements. General and administrative expenses increased $521 thousand, or 13.9%, in the three months ended September 30, 2021 compared to the three months ended September 30, 2020, primarily due: to an increase in compensation-related expenses stemming from a higher head count and benefits costs and stock compensation expense. The increase was also due to increased board of director compensation, as the company elected two new members to the board of directors on November 5, 2020.

Depreciation and Amortization Expense

Depreciation and amortization expense represents the depreciation on real estate investments that have estimated lives ranging from two to fifty-five years. Depreciation and amortization increased by approximately $1.3 million, or 17.4%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020, due to the acquisition of 135 properties, during the year-over-year period from October 1, 2020 through September 30, 2021.

Property Expense

We record all tenant expenses, both reimbursed and non-reimbursed, to property expense. We also record initial direct costs (lease negotiation and other previously capitalizable transaction expenses) as property expenses. Other property expenses consist of expenses incurred on vacant properties, abandoned deal costs, and franchise taxes. During the three months ended September 30, 2021, we recorded property expenses of $1.5 million, of which $1.0 million was reimbursed by tenants. During the three months ended September 30, 2020, we recorded property expenses of $838 thousand, of which $600 thousand was reimbursed by tenants. The primary reasons for the $165 thousand increase in non-reimbursed expenses were an increase in property taxes, maintenance costs, and abandoned deal costs.

Interest Expense

We incur interest expense on our $400 million of term loans, any outstanding borrowings on our revolving credit facility, interest rate swaps, and our $450 million of senior fixed rate notes. Interest expense increased $0.9 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020, primarily due to the issuance of $100 million of senior fixed notes in April 2021.

Realized Gain on Sale, Net

During the three months ended September 30, 2021 and 2020, the Company did not sell any assets.

Income Taxes

During the three months ended September 30, 2021 and 2020, our income tax expense was $97 thousand and $67 thousand, respectively. The income tax provision consists of federal, state, and local income taxes incurred by the Kerrow Restaurant Operating Business, and state and local income taxes we incurred on our lease portfolio.

Restaurant Operations

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

Restaurant revenues increased by $2.9 million, or 71.7%, during the three months ended September 30, 2021 compared to the three months ended September 30, 2020 primarily due to an improvement in casual dining trends as restrictions on seating capacity were eased and the addition of a seventh restaurant which began operations in April 2021.

Total restaurant expenses increased by $2.6 million, or 64.2%, during the three months ended September 30, 2021 compared to the three months ended September 30, 2020, primarily due to an increase in cost of goods sold and labor costs and the addition of a seventh restaurant which began operations in April 2021.

Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020

Real Estate Operations

Rental Revenue

Rental revenue increased $12.7 million, or 11.1%, during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. This increase was due to the net acquisition of 135 leased properties, during the year-over-year period from October 1, 2020 through September 30, 2021. During the nine months ended September 30, 2021, we recognized variable lease revenue, including costs paid by the lessor and reimbursed by the lessees within rental revenue of

$2.8 million as compared to $1.7 million during the nine months ended September 30, 2020. These amounts are also recognized in property expenses.

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

General and Administrative Expenses

General and administrative expense is comprised of costs associated with staff, office rent, legal, accounting, information technology, and other professional services and other administrative services in association with our real estate operations and our REIT structure and reporting requirements. General and administrative expenses increased $2.2 million, or 19.3%, in the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, primarily due to an increase in cash compensation-related expenses stemming from a higher head count and benefits costs related to employees added in 2020 and 2021 as well as an increase in legal fees related to the amendment of our credit facility. The increase was also due to increased board of director compensation, as the company elected two new members to the board of directors on November 5, 2020.

Depreciation and Amortization Expense

Depreciation and amortization expense represents the depreciation on real estate investments that have estimated lives ranging from two to fifty-five years. Depreciation and amortization increased by approximately $3.8 million, or 17.5%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, due to the acquisition of 135 properties, during the year-over-year period from October 1, 2020 through September 30, 2021.

Property Expense

We record all tenant expenses, both reimbursed and non-reimbursed, to property expense. We also record initial direct costs (lease negotiation and other previously capitalizable transaction expenses) as property expenses. Other property expenses consist of expenses incurred on vacant properties and franchise taxes. During the nine months ended September 30, 2021, we recorded property expenses of $3.7 million, of which $2.8 million was reimbursed by tenants. During the nine months ended September 30, 2020, we recorded property expenses of $2.5 million, of which $1.7 million was reimbursed by tenants. The primary reason for the $99 thousand increase in non-reimbursed property expenses was an increase in property taxes and maintenance costs, which was partially offset by a decrease in abandoned deal costs.

Interest Expense

We incur interest expense on our $400 million of term loans, any outstanding borrowings on our revolving credit facility, interest rate swaps, and our $450 million of senior fixed rate notes. Interest expense increased $2.6 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, primarily due to deferred financing costs which were expensed as a result of the extension of the term loans and amended revolving credit facility and issuance of $100 million of senior fixed notes in April 2021.

Realized Gain on Sale, Net

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. The Company did not sell any assets during the nine months ended September 30, 2020.

Income Taxes

During the nine months ended September 30, 2021 and 2020, our income tax expense was $231 thousand and $192 thousand, respectively. The income tax provision consists of federal, state, and local income taxes incurred by the Kerrow Restaurant Operating Business, and state and local income taxes we incurred on our lease portfolio.

Restaurant Operations

Restaurant revenues increased by $7.7 million, or 65.6%, during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 primarily due to an improvement in casual dining trends as restrictions on seating capacity were eased and the addition of a seventh restaurant which began operations in April 2021.

Total restaurant expenses increased by $6.2 million, or 52.5%, during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, primarily due to an increase in cost of goods sold and labor costs and the addition of a seventh restaurant which began operations in April 2021.

Critical Accounting Policies

The preparation of FCPT’s consolidated financial statements in conformance with U.S. GAAP requires management to make estimates on assumptions that affect the reported amounts of assets, liabilities, revenues and expenses as well as other disclosures in the financial statements. On an ongoing basis, management evaluates its estimates and assumptions; however, actual results may differ from these estimates and assumptions, which in turn could have a material impact on our financial statements. A summary of FCPT’s critical accounting policies is included in our Annual Report on Form 10-K for the year ended December 31, 2020 in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates.” Management believes those critical accounting policies, among others, affect our more significant estimates and assumptions used in the preparation of our consolidated financial statements.

New Accounting Standards

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

Liquidity and Financial Condition

On June 4, 2021, the Company and its subsidiary, FCPT OP (the “Borrower”), entered into a Second Amended and Restated Revolving Credit and Term Loan Agreement (the “Loan Agreement”), which amended and restated in its entirety an existing Amended and Restated Revolving Credit and Term Loan Agreement dated as of October 2, 2017. Prior to the Loan Agreement, $150 million principal amount outstanding under the Company's term loan facility was scheduled to mature on November 9, 2022; $150 million principal amount outstanding was scheduled to mature on November 9, 2023; $100 million was scheduled to mature on March 9, 2024; and the $250 million revolving credit facility was scheduled to mature on November 9, 2021, with two six-month extension options. The Loan Agreement provides for a revolving credit facility in an aggregate principal amount of $250 million, with a maturity date of November 9, 2025 and a term loan facility in an aggregate principal amount of $400 million, comprised of (i) a $50 million term credit facility with a maturity date of November 9, 2023, (ii) a $100 million term credit facility with a maturity date of March 9, 2024, (iii) a $150 million term credit facility with a maturity date of November 9, 2025, and (iv) a $100 million term credit facility with a maturity date of November 9, 2026.

At September 30, 2021, we had $7.8 million of cash and cash equivalents and $197 million of borrowing capacity under our revolving credit facility, which expires on November 9, 2025, subject to our ability to extend the term for one additional six-month period to May 9, 2026. The revolving credit facility provides for a letter of credit sub-limit of $25 million. See Note 6 - Long-Term Debt, Net of Deferred Financing Costs included in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information. As of September 30, 2021, we had outstanding borrowings of $53 million under the revolving credit facility. At September 30, 2021, the weighted average interest rate on the term loans and the revolver, after consideration of the interest rate hedges, was 2.74%.

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

income and expense recorded as a component of net income and other valuation changes recorded as a component of other comprehensive income.


Notional Amount ($ in thousands)		Effective Date	Maturity Date	Fixed Rate to Pay		Variable Rate to Receive
$	100,000	11/9/2018	11/9/2021	1.960	%	one-month LIBOR
$	100,000	11/9/2020	11/9/2023	2.302	%	one-month LIBOR
$	100,000	11/9/2020	11/9/2022	2.002	%	one-month LIBOR
$	50,000	11/9/2020	11/9/2025	0.503	%	one-month LIBOR
$	100,000	11/9/2021	11/9/2022	2.002	%	one-month LIBOR
$	150,000	11/9/2022	11/9/2024	1.913	%	one-month LIBOR
$	50,000	11/9/2023	11/9/2025	0.821	%	one-month LIBOR
$	100,000	11/9/2024	11/9/2025	0.821	%	one-month LIBOR
$	50,000	11/9/2025	11/9/2028	1.496	%	one-month LIBOR
$	50,000	11/9/2025	11/9/2027	1.485	%	one-month LIBOR

During the first quarter of 2021, we entered into one cash flow hedge in connection with the issuance of $100 million of notes by the Company in April 2021. The Company terminated three cash flow hedges in connection with a $100 million private note offering that was entered into on February 25, 2021. The first hedge was an interest rate swap that had a fixed notional value of $25 million entered into on September 29, 2020 with an effective date of May 4, 2021 and a maturity date of May 4, 2031, where the fixed rate paid by the Company was 0.7516% and the variable rate received reset monthly to the three-month LIBOR rate. The second hedge was an interest rate swap that had a fixed notional value of $25 million entered into on October 9, 2020 with an effective date of May 4, 2021 and a maturity date of May 4, 2031, where the fixed rate paid by the Company was 0.8778% and the variable rate received reset monthly to the three-month LIBOR rate. The third hedge was an interest rate swap that had a fixed notional value of $25 million entered into on January 15, 2021 with an effective date of February 16, 2021 and a maturity date of February 15, 2031, where the fixed rate paid by the Company was 1.1165% and the variable rate received reset monthly to the three-month LIBOR rate. The swaps were terminated on January 29, 2021 for approximately a $1.7 million gain which will be amortized over the next 10 years as interest expense.

The Company has issued $450 million of senior unsecured fixed rate notes (together, the “Notes”) in private placements pursuant to note purchase agreements with the various purchasers.

On February 25, 2021, FCPT entered into agreements to issue $100 million of senior unsecured notes. The Notes consist of $50 million of notes with an eight-year term, which were issued on April 27, 2021 and mature on April 30, 2029, and priced at a fixed interest rate of 2.74%, and $50 million of notes with a ten-year term, which were issued on April 27, 2021, and mature on April 29, 2031, and priced at a fixed interest rate of 2.99%. These notes were issued at par value.

The Notes issued in June 2017 consist of $50 million of notes with a term ending in June 2024 and priced at a fixed interest rate of 4.68%, and $75 million of notes with a term ending in June 2027 and priced at a fixed interest rate of 4.93%. The Notes issued in December 2018 consist of $50 million of notes with a term ending in December 2026 and priced at a fixed interest rate of 4.63%, and $50 million of notes with a term ending in December 2028 and priced at a fixed interest rate of 4.76%. The Notes issued in March 2020 consist of $75 million of notes with a ten-year term that funded on April 8, 2020 and mature on April 8, 2030, priced at a fixed interest rate of 3.20%, and $50 million of notes with a nine-year term that funded on June 9, 2020 and mature on June 9, 2029, priced at a fixed interest rate of 3.15%.

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

During the nine months ended September 30, 2021, the Company issued 1,161,702 shares at a weighted average share price of $27.93 for net proceeds of $31.8 million. At September 30, 2021, there was $322.3 million available for issuance under our new ATM program.

On a short-term basis, our principal demands for funds will be for operating expenses, distributions to stockholders and interest and principal on current and any future debt financings. We expect to fund our operating expenses and other short-term liquidity requirements, capital expenditures, payment of principal and interest on our outstanding indebtedness, property improvements, re-leasing costs and cash distributions to common stockholders, primarily through cash provided by operating activities, and, for acquisitions, investments, and other capital expenditures, from borrowings under our $250 million revolving credit facility.

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

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

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

Impact of COVID-19 on Liquidity and Financial Condition

As a result of the short-term and potential longer term impact of COVID-19 and the actions taken to minimize its spread, we may temporarily reduce the annual rate of our annual cash dividends. We currently intend to continue paying sufficient dividends to maintain our status as a REIT.

Property rental income is our primary source of cash flow and is dependent on a number of factors, including our occupancy level and rental rates, as well as our tenants’ ability to pay rent. Our properties have historically provided us with a relatively consistent stream of cash flow that enables us to pay operating expenses, debt service and recurring capital expenditures. As discussed in more detail below, the effects of COVID-19 and the actions taken to minimize its spread have had an adverse impact on our tenants’ ability to operate and could impact their ability to pay rent to us and therefore have a significant longer term adverse impact on our cash flow and financial condition. Other sources of liquidity to fund cash requirements include proceeds from financings, equity offerings and asset sales.

The Company continues to monitor the COVID-19 pandemic and its impact on our overall liquidity position and outlook. During the last few months, several vaccines for COVID-19 received FDA approval and are currently being administered across the country. Despite growing vaccination rates, we believe COVID-19 will continue to impact the normal operations for our tenants and our managed restaurants. The ultimate impact COVID-19 may have on our operational and financial performance is currently uncertain and will depend on certain developments, including, among others, the impact of COVID-19 on our tenants, on restaurants that we manage and the magnitude and duration of the pandemic, including its impact on social distancing rules which may impact a tenant’s ability to generate sales at sufficient levels to cover operating costs, governmental efforts to distribute vaccines and overall vaccination rates in the areas in which we own and manage properties. Our ability to retain our outstanding borrowings and utilize remaining amounts available under our revolving credit facility will depend on our continued compliance with the applicable financial covenants and other terms of our credit agreements, which may be impacted by tenant store closures and failure of tenants to pay rent.

Pandemic-Related Contingencies

The ongoing COVID-19 pandemic and restrictions intended to prevent and mitigate its spread could have additional adverse effects on our business, including but not limited to:

•the ability and willingness of our tenants to renew their leases upon expiration, our ability to re-lease the properties on the same or better terms in the event of nonrenewal or in the event we exercise our right to replace an existing tenant, and obligations we may incur in connection with the replacement of an existing tenant, particularly in light of the adverse impact to the financial health of many restaurant owners that has occurred and continues to occur as a result of the COVID-19 pandemic and the significant uncertainty as to when and the conditions under which potential tenants will be able to operate in future;

•macroeconomic conditions, such as a disruption of or lack of access to the capital markets and the adverse impact of the recent significant decline in our share price from prices prior to the spread of the COVID-19 pandemic;

•the broader impact of the severe economic contraction due to the COVID-19 pandemic, the resulting increase in unemployment that has occurred and its effect on consumer behavior, and negative consequences that will occur if these trends are not timely reversed; and

•potential reduction in our operating effectiveness as employees work remotely or if key personnel become unavailable due to illness or other personal circumstances related to COVID-19.

The COVID-19 pandemic and restrictions intended to prevent and mitigate its spread have already had a significant adverse impact on economic and market conditions around the world, including the United States and markets where our properties are located, in 2020 and the first nine months of 2021 and could further trigger a period of sustained global and U.S. economic downturn or recession. While the rapid developments regarding the COVID-19 pandemic preclude any prediction as to its ultimate adverse impact, the current economic, political and social environment presents material risks and uncertainties with respect to our and our tenants’ business, financial condition, results of operations, cash flows, liquidity and ability to access the capital markets and satisfy debt service obligations.

Contractual Obligations

There were no material changes outside the ordinary course of business to the information regarding specified contractual obligations contained in our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC.

Off-Balance Sheet Arrangements

At September 30, 2021, we had no off-balance sheet arrangements.

Supplemental Financial Measures

The following tables presents a reconciliation of U.S. GAAP net income to National Association of Real Estate Investment Trusts (“NAREIT”) funds from operations (“FFO”) and adjusted funds from operations (“AFFO”) for the three and nine months ended September 30, 2021 and 2020.


	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands, except share and per share data)	2021		2020		2021		2020
Net income	$	21,208	$	19,404	$	62,010	$	57,260
Depreciation and amortization on real estate investments	8,797		7,503		25,378		21,615
Realized gain on sales of real estate, net	—		—		(431)		—

FFO (as defined by NAREIT)	$	30,005	$	26,907	$	86,957	$	78,875

Straight-line rent	(1,979)		(2,248)		(5,775)		(6,519)
Recognized rental revenue expected to be abated (1)	—		(196)		—		(1,568)
Stock-based compensation	844		868		3,092		2,496
Non-cash amortization of deferred financing costs	468		543		1,901		1,589
Other non-cash interest (income) expense	—		1		—		(1)
Non-real estate investment depreciation	34		20		77		55

Other non-cash revenue adjustments	536		412		1,590		799

Adjusted Funds from Operations (AFFO)	$	29,908	$	26,307	$	87,842	$	75,726

Fully diluted shares outstanding (2)	76,519,431		71,434,873		76,381,395		70,879,855

FFO per diluted share	$	0.39	$	0.38	$	1.14	$	1.11

AFFO per diluted share	$	0.39	$	0.37	$	1.15	$	1.07

(1) Amount represents base rent that the Company believed it would abate as a result of lease amendments. GAAP requires revenue recognition for the abated rent in the current period. For the second quarter of 2020, this amount was recorded in rental revenue and accounts receivable. When the related amendments were signed, the accounts receivable balance equal to the abated rental payment was recognized as a lease incentive and amortized as a reduction to rental revenue over the future lease term.

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

Non-GAAP Definitions

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

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

Our management uses FFO as a supplemental performance measure because, in excluding real estate related depreciation and amortization and gains and losses from property dispositions, it provides a performance measure that, when compared year

over year, captures trends in occupancy rates, rental rates and operating costs. We offer this measure because we recognize that FFO will be used by investors as a basis to compare our operating performance with that of other REITs. However, because FFO excludes depreciation and amortization and captures neither the changes in the value of our properties that result from use or market conditions, nor the level of capital expenditures and capitalized leasing commissions necessary to maintain the operating performance of our properties, all of which have real economic effect and could materially impact our financial condition and results from operations, the utility of FFO as a measure of our performance is limited. FFO is a non-GAAP measure and should not be considered a measure of liquidity including our ability to pay dividends or make distributions. In addition, our calculations of FFO are not necessarily comparable to FFO as calculated by other REITs that do not use the same definition or implementation guidelines or interpret the standards differently from us. Investors in our securities should not rely on these measures as a substitute for any U.S. GAAP measure, including net income.

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

1.Transaction costs incurred in connection with business combinations

2.Straight-line rent revenue adjustment

3.Stock-based compensation expense

4.Non-cash amortization of deferred financing costs

5.Other non-cash interest expense (income)

6.Non-real estate investment depreciation

7.Merger, restructuring and other related costs

8.Impairment charges

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

10.Amortization of capitalized leasing costs

11.Debt extinguishment gains and losses

12.Recurring capital expenditures and tenant improvements

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Information concerning market risk is incorporated herein by reference to Part II, Item 7A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, as supplemented by the information under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II, Item 1A titled “Risk Factors.” Other than the developments described thereunder, including changes in the fair values of our assets, there have been no other material changes in our quantitative or qualitative exposure to market risk since December 31, 2020.

Item 4. Controls and Procedures.

Disclosure Controls and Procedures

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

Changes in Internal Control over Financial Reporting

During the third quarter of 2021, there have been no changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

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

Item 1A. Risk Factors.

There have been no material changes to the risk factors as disclosed in Part I, Item 1A. “Risk Factors” beginning on page 8 of our Annual Report on Form 10-K for the year ended December 31, 2020.

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

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not Applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

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

INDEX TO EXHIBITS


Exhibit Number						Description
3.1						Articles of Amendment and Restatement of Four Corners Property Trust, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on October 27, 2015).
3.2						Amended and Restated Bylaws of Four Corners Property Trust, Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on October 27, 2015).
10.1						Second Amended and Restated Revolving Credit and Term Loan Agreement, dated June 4, 2021, among Four Corners Operating Partnership, LP, Four Corners Property Trust, Inc., certain lenders party thereto and JPMorgan Chase Bank, N.A. as administrative agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 4, 2021).
10.2						Second Amended and Restated Parent Guaranty, dated June 4, 2021, by Four Corners Property Trust, Inc. and Four Corners GP, LLC, for the benefit of JPMorgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on June 4, 2021).
31 (a)*						Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31 (b)*						Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32 (a)*						Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32 (b)*						Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101*						The following materials from Four Corners Property Trust, Inc.’s Quarterly Report on Form 10-Q for the three months ended September 30, 2021 formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statement of Equity, (v) the Consolidated Statements of Cash Flows, and (vi) related notes to these consolidated financial statements.
104*						The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, formatted in iXBRL and contained in Exhibit 101.

* Filed herewith

SIGNATURE

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




		FOUR CORNERS PROPERTY TRUST, INC.


Dated:	October 28, 2021	By:	/s/ William H. Lenehan
			William H. Lenehan
			President and Chief Executive Officer
			(Principal Executive Officer)


Dated:	October 28, 2021	By:	/s/ Gerald R. Morgan
			Gerald R. Morgan
			Chief Financial Officer
			(Principal Financial Officer)


Dated:	October 28, 2021	By:	/s/ Niccole M. Stewart
			Niccole M. Stewart
			Chief Accounting Officer
			(Principal Accounting Officer)