Four Corners Property Trust Inc

Previous wording

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, 2023 and in the Quarterly Report on Form 10-Q of Four Corners Property Trust, Inc. for the quarter ended March 31, 2024. 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.

Current wording

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, 2023 and in the Quarterly Report on Form 10-Q of Four Corners Property Trust, Inc. for the quarters ended March 31, 2024 and June 30, 2024. 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.

Previous wording

During the six months ended June 30, 2024, FCPT acquired 21 properties for a total investment value of $63.8 million, including transaction costs. These properties are 100% occupied under net leases with a weighted average remaining lease term of 12.2 years.

Current wording

During the nine months ended September 30, 2024, FCPT acquired 42 properties for a total investment value of $136.7 million, including transaction costs. These properties are 100% occupied under net leases with a weighted average remaining lease term of 11.7 years.

Previous wording

1,132 properties located in 47 states and representing an aggregate leasable area of 7.7 million square feet;

Current wording

1,153 properties located in 47 states and representing an aggregate leasable area of 7.8 million square feet;

Previous wording

An average remaining lease term of 7.4 years (weighted by annualized base rent);

Current wording

An average remaining lease term of 7.3 years (weighted by annualized base rent);

Previous wording

58.7% investment-grade tenancy (weighted by annualized base rent).

Current wording

57% investment-grade tenancy (weighted by annualized base rent).

Previous wording

During the three and six months ended June 30, 2024 and 2023, we operated in two segments: real estate operations and restaurant operations. The following discussion includes the results of our operations for the three and six months ended June 30, 2024 and 2023 as summarized in the table below:

Current wording

During the three and nine months ended September 30, 2024 and 2023, 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, 2024 and 2023 as summarized in the table below:

Previous wording

Rental revenue increased $5.7 million, or 10.8%, during the three months ended June 30, 2024 compared to the three months ended June 30, 2023. This increase was due primarily to the acquisition of 58 leased properties during the year-over-year period from July 1, 2023 through June 30, 2024, which was partially offset by the disposal of three properties during the period. We do not anticipate these dispositions to have a material impact on future revenue. During the three months ended June 30, 2024, we recognized variable lease revenue, including costs paid by the lessor and reimbursed by the lessees within rental revenue of $2.3 million as compared to $2.3 million during the three months ended June 30, 2023. These amounts are also recognized in property expenses.

Current wording

Rental revenue increased $2.0 million, or 3.6%, during the three months ended September 30, 2024 compared to the three months ended September 30, 2023. This increase was due primarily to the acquisition of 48 leased properties during the year-over-year period from October 1, 2023 through September 30, 2024, which was partially offset by the disposal of one property during the period. We do not anticipate the disposition to have a material impact on future revenue. During the three months ended September 30, 2024, we recognized variable lease revenue, including costs paid by the lessor and reimbursed by the lessees within rental revenue of $2.1 million as compared to $2.4 million during the three months ended September 30, 2023. These amounts are also recognized in property expenses.

Previous wording

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 $404 thousand, or 7.2%, in the three months ended June 30, 2024 compared to the three months ended June 30, 2023, primarily due to an increase in cash compensation-related expenses and increased non-cash stock compensation expense.

Current wording

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 $349 thousand, or 6.3%, in the three months ended September 30, 2024 compared to the three months ended September 30, 2023, primarily due to an increase in cash compensation-related expenses and increased non-cash stock compensation expense.

Previous wording

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 $1.5 million, or 12.9%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023, due to the acquisition of 58 properties, during the year-over-year period from July 1, 2023 through June 30, 2024.

Current wording

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 $0.2 million, or 1.4%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, due to the acquisition of 48 properties, during the year-over-year period from October 1, 2023 through September 30, 2024.

Previous wording

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 June 30, 2024, we recorded property expenses of $2.8 million, of which $2.3 million was reimbursed by tenants. During the three months ended June 30, 2023, we recorded property expenses of $2.7 million, of which $2.3 million was reimbursed by tenants.

Current wording

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, 2024, we recorded property expenses of $2.6 million, of which $2.1 million was reimbursed by tenants. During the three months ended September 30, 2023, we recorded property expenses of $2.9 million, of which $2.4 million was reimbursed by tenants.

Previous wording

We incur interest expense on our $515 million of term loans, any outstanding borrowings on our revolving credit facility, interest rate swaps, and our $625 million of senior fixed rate notes. Interest expense increased $2.3 million for the three months ended June 30, 2024 compared to the three months ended June 30, 2023, primarily due to an issuance of $100 million of senior fixed notes in July 2023 and a higher utilization of the revolving credit facility.

Current wording

We incur interest expense on our $515 million of term loans, any outstanding borrowings on our revolving credit facility, interest rate swaps, and our $625 million of senior fixed rate notes. Interest expense increased by less than $0.1 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, primarily due to the issuance of the additional $85 million term loan in March 2024, which was offset by a reduction of interest expense due to the repayment of the $50 million senior unsecured fixed rate note.

Previous wording

During the three months ended June 30, 2024, the Company did not sell any properties. During the three months ended June 30, 2023, the Company sold one property with a net book value of $1.7 million for a realized gain on sale of $173 thousand.

Current wording

During the three months ended September 30, 2024, the Company did not sell any properties. During the three months ended September 30, 2023, the Company sold two properties with a net book value of $9.5 million for a realized gain on sale of $318 thousand.

Previous wording

During the six months ended June 30, 2024 and 2023, our income tax expense was $113 thousand and $139 thousand, respectively. The income tax provision consists of federal, state, and local income taxes incurred by the Kerrow Restaurant Operating Business, and state and local income taxes we incurred on our lease portfolio. During the six months ended June 30, 2024, the net deferred tax asset at the Kerrow Restaurant Operating Business increased by $92 thousand. This deferred tax benefit related to routine book-tax differences and was recorded within income tax expense in the Consolidated Statements of Income.

Current wording

During the three months ended September 30, 2024, our income tax expense was $90 thousand. During the three months ended September 30, 2023, we recorded an income tax benefit of $89 thousand. The income tax provision consists of federal, state, and local income taxes incurred by the Kerrow Restaurant Operating Business, and state and local income taxes we incurred on our lease portfolio. During the three months ended September 30, 2024, the net deferred tax asset at the Kerrow Restaurant Operating Business increased by $61 thousand. This deferred tax benefit related to routine book-tax differences and was recorded within income tax expense in the Consolidated Statements of Income.

Previous wording

Total restaurant expenses increased by $404 thousand, or 2.8%, during the six months ended June 30, 2024 compared to the six months ended June 30, 2023, primarily due to an increase in cost of goods sold and labor costs.

Current wording

Total restaurant expenses decreased by $200 thousand, or 2.8%, during the three months ended September 30, 2024 compared to the three months ended September 30, 2023, primarily due to improved staffing and a reduction in overtime hours.

Previous wording

Rental revenue increased $12.1 million, or 11.5%, during the six months ended June 30, 2024 compared to the six months ended June 30, 2023. This increase was due to the acquisition of 58 leased properties during the year-over-year period from July 1, 2023 through June 30, 2024, which was partially offset by the disposal of three properties during the period. We do not anticipate these dispositions to have a material impact on future revenue. During the six months ended June 30, 2024, we recognized variable lease revenue, including costs paid by the lessor and reimbursed by the lessees within rental revenue of $5.0 million as compared to $4.8 million during the six months ended June 30, 2023. These amounts are also recognized in property expenses.

Current wording

Rental revenue increased $14.1 million, or 8.7%, during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. This increase was due to the acquisition of 48 leased properties during the year-over-year period from October 1, 2023 through September 30, 2024, which was partially offset by the disposal of one property during the period. We do not anticipate the disposition to have a material impact on future revenue. During the nine months ended September 30, 2024, we recognized variable lease revenue, including costs paid by the lessor and reimbursed by the lessees within rental revenue of $7.1 million as compared to $7.1 million during the nine months ended September 30, 2023. These amounts are also recognized in property expenses.

Previous wording

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 $562 thousand, or 4.8%, in the six months ended June 30, 2024 compared to the six months ended June 30, 2023, primarily due to an increase in compensation-related expenses and increased non-cash stock compensation expense.

Current wording

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 $911 thousand, or 5.3%, in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, primarily due to an increase in compensation-related expenses and increased non-cash stock compensation expense.

Previous wording

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 $2.8 million, or 11.7%, for the six months ended June 30, 2024 compared to the six months ended June 30, 2023, due to the acquisition of 58 properties, during the year-over-year period from July 1, 2023 through June 30, 2024.

Current wording

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 $3.0 million, or 8.0%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, due to the acquisition of 48 properties, during the year-over-year period from October 1, 2023 through September 30, 2024.

Previous wording

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 six months ended June 30, 2024, we recorded property expenses of $5.9 million, of which $5.0 million was reimbursed by tenants. During the six months ended June 30, 2023, we recorded property expenses of $5.8 million, of which $4.8 million was reimbursed by tenants.

Current wording

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, 2024, we recorded property expenses of $8.5 million, of which $7.1 million was reimbursed by tenants. During the nine months ended September 30, 2023, we recorded property expenses of $8.7 million, of which $7.1 million was reimbursed by tenants.

Previous wording

We incur interest expense on our $515 million of term loans, any outstanding borrowings on our revolving credit facility, interest rate swaps, and our $625 million of senior fixed rate notes. Interest expense increased $4.6 million for the six months ended June 30, 2024 compared to the six months ended June 30, 2023, primarily due to the issuance of $100 million of senior fixed notes in July 2023 and a higher utilization of the revolving credit facility.

Current wording

We incur interest expense on our $515 million of term loans, any outstanding borrowings on our revolving credit facility, interest rate swaps, and our $625 million of senior fixed rate notes. Interest expense increased $4.7 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, primarily due to the issuance of $100 million of senior fixed rate notes in July 2023 and the issuance of the additional $85 million term loan in March 2024, which was partially offset by a reduction of interest expense due to the repayment of the $50 million senior unsecured fixed rate note.

Previous wording

During the six months ended June 30, 2024, the Company did not sell any properties. During the six months ended June 30, 2023, the Company sold four properties with a combined net book value of $11.0 million for a realized gain on sale of $1.7 million.

Current wording

During the nine months ended September 30, 2024, the Company did not sell any properties. During the nine months ended September 30, 2023, the Company sold six properties with a combined net book value of $20.6 million for a realized gain on sale of $2.1 million.

Previous wording

During the three months ended June 30, 2024 and 2023, our income tax expense was $86 thousand and $91 thousand, respectively. The income tax provision consists of federal, state, and local income taxes incurred by the Kerrow Restaurant Operating Business, and state and local income taxes we incurred on our lease portfolio. During the three months ended June 30, 2024, the net deferred tax asset at the Kerrow Restaurant Operating Business increased by $20 thousand. This deferred tax benefit related to routine book-tax differences and was recorded within income tax expense in the Consolidated Statements of Income.

Current wording

During the nine months ended September 30, 2024 and 2023, our income tax expense was $203 thousand and $50 thousand, respectively. The income tax provision consists of federal, state, and local income taxes incurred by the Kerrow Restaurant Operating Business, and state and local income taxes we incurred on our lease portfolio. During the nine months ended September 30, 2024, the net deferred tax asset at the Kerrow Restaurant Operating Business increased by $153 thousand. This deferred tax benefit related to routine book-tax differences and was recorded within income tax expense in the Consolidated Statements of Income.

Previous wording

Restaurant revenues increased by $95 thousand, or 1.2%, during the three months ended June 30, 2024 compared to the three months ended June 30, 2023 primarily due to higher net pricing and continued emphasis in customer service.

Current wording

Restaurant revenues increased by $141 thousand, or 0.6%, during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily due to higher net pricing, partially offset by city construction projects outside two locations.

Previous wording

Total restaurant expenses increased by $135 thousand, or 1.9%, during the three months ended June 30, 2024 compared to the three months ended June 30, 2023, primarily due to an increase in cost of goods sold and labor costs.

Current wording

Total restaurant expenses increased by $204 thousand, or 0.9%, during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, primarily due to an increase in cost of goods sold.

Previous wording

At June 30, 2024, we had $17.2 million of cash and cash equivalents and $223 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 - 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 June 30, 2024, we had outstanding borrowings of $27.0 million under the revolving credit facility. At June 30, 2024, the weighted average interest rate on the term loans, after consideration of the interest rate hedges, was 3.92%.

Current wording

At September 30, 2024, we had $44.5 million of cash and cash equivalents and $250 million of borrowing capacity under our revolving credit facility, which expires on November 9, 2025, subject to our ability to extend the term for one additional six-month period to May 9, 2026. The revolving credit facility provides for a letter of credit sub-limit of $25 million. See Note 6 - 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, 2024, we had no outstanding borrowings under the revolving credit facility. At September 30, 2024, the weighted average interest rate on the term loans, after consideration of the interest rate hedges, was 3.76%.

Previous wording

During the first six months of 2024, we entered into four interest rate swaps to hedge the interest rate variability associated with the term loan portion of our credit facility.

Current wording

During the first nine months of 2024, we entered into these interest rate swaps to hedge the interest rate variability associated with the term loan portion of our credit facility

Previous wording

The Company enters into forward-starting interest rate swap agreements to hedge against changes in future cash flows resulting from changes in interest rates from the trade date through the forecasted issuance date of debt. During the six months ended June 30, 2024, the Company terminated one cash flow hedge in connection with the $85 million Term Loan that was entered into on March 11, 2024 and funded on March 14, 2024. This cash flow hedge had a total notional value of $25 million and was entered into in August 2023 to hedge the interest rate on a future offering or term loan. The swap was terminated on February 28, 2024, with the corresponding asset of $211 thousand which will be amortized over the next 10 years as an increase to interest expense.

Current wording

The Company also enters into forward-starting interest rate swap agreements to hedge against changes in future cash flows resulting from changes in interest rates from the trade date through the forecasted issuance date of debt. During the nine months ended September 30, 2024, the Company terminated one cash flow hedge in connection with the $85 million Term Loan that was entered into on March 11, 2024 and funded on March 14, 2024. This cash flow hedge had a total notional value of $25 million and was entered into in August 2023 to hedge the interest rate on a future offering or term loan. The swap was terminated on February 28, 2024, with the corresponding asset of $211 thousand which will be amortized over the next 10 years as an increase to interest expense.

Previous wording

In November 2022, the Company entered into its ATM program (the “current ATM program”), pursuant to which shares of the Company’s common stock having an aggregate gross sales price of up to $450.0 million may be offered and sold (1) by the Company to, or through, a consortium of banks acting as its sales agents or (2) by a consortium of banks acting as forward sellers on behalf of any forward purchasers contemplated thereunder, in each case by means of 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. In connection with the Company’s current 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.

Current wording

On September 17, 2024, the Company terminated the prior ATM program and entered into a new ATM program (the "ATM programs"), pursuant to which shares of the Company’s common stock having an aggregate gross sales price of up to $500.0 million may be offered and sold (1) by the Company to, or through, a consortium of banks acting as its sales agents or (2) by a consortium of banks acting as forward sellers on behalf of any forward purchasers contemplated thereunder, in each case by means of 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. The ATM program replaces the Company's previous $450.0 million ATM program (the "prior ATM program" and, together with the ATM program, the "ATM programs"), which was established in November 2022, under which the Company had sold shares of its common stock having an aggregate gross sales price of $404.8 million through September 17, 2024. In connection with the Company’s ATM programs, 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.

Previous wording

During the three months ended June 30, 2023, the Company issued 4,463,788 shares under the current ATM program, including physically settled forward sale agreements, at a gross weighted average share price of $27.16 and a net weighted average share price of $26.72 for net proceeds of $119.3 million. During the six months ended June 30, 2023, the Company issued 4,787,970 shares under the current ATM program, including physically settled forward sale agreements, at a gross weighted average share price of $27.23 and a net weighted average share price of $26.79 for net proceeds of $128.3 million.

Current wording

During the three months ended September 30, 2024, the Company issued 4,412,272 shares under the ATM programs, including physically settled forward sale agreements, at a gross weighted average share price of $26.74. After sales commissions and offering expenses, these shares were issued at a net weighted average share price of $26.30 for net proceeds of $116.0 million. During the nine months ended September 30, 2024, the Company issued 4,792,842 shares under the ATM programs, including physically settled forward sale agreements, at a gross weighted average share price of $26.63. After sales commissions and offering expenses, these shares were sold at a net weighted average share price of $26.15 for net proceeds of $125.3 million.

Previous wording

During the six months ended June 30, 2023, the Company executed forward sale agreements with financial institutions acting as forward purchasers under the current ATM program to sell 1,907,946 shares of common stock at a weighted average sales price of $27.73 per share before sales commissions and offering expenses. During the three months ended June 30, 2023, the Company physically settled its forward sale agreements and issued 4,113,788 shares at a weighted average share price of $26.81 for net proceeds of $110.3 million. During the six months ended June 30, 2023, the Company physically settled its forward sale agreements and issued 4,437,970 shares at a weighted average share price of $26.88 for net proceeds of $119.3 million.

Current wording

The Company did not execute or settle forward sale agreements during the three months ended September 30, 2023. During the nine months ended September 30, 2023, the Company executed forward sale agreements with financial institutions acting as forward purchasers under the prior ATM program to sell 1,907,946 shares of common stock at a weighted average sales price of $27.73 per share before sales commissions and offering expenses. During the nine months ended September 30, 2023, the Company physically settled its forward sale agreements under the prior ATM program and issued 4,437,970 shares at a gross weighted average share price of $27.32. After sales commissions and offering expenses, these shares were sold at a net weighted average share price of $26.88 for net proceeds of $119.3 million.

Previous wording

At June 30, 2024, there was $235.8 million available for issuance under the current ATM program.

Current wording

At September 30, 2024, there was $483.3 million available for issuance under the ATM programs.

Previous wording

Amount represents non-cash deferred income tax benefit recognized in the three and six months ended June 30, 2024 and 2023 for income tax benefit at the Kerrow Restaurant Business.

Current wording

Amount represents non-cash deferred income tax benefit recognized in the three and nine months ended September 30, 2024 and 2023 for income tax benefit at the Kerrow Restaurant Business.