Four Corners Property Trust, Inc. (together with its subsidiaries, “Four Corners”“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.

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 related food service industries. On November 9, 2015, Darden completed a spin-off of Four CornersFCPT whereby Darden contributed to us 100% of the equity interest in entities that own 418 properties (the “Properties” or “Property”) 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 (the “Spin-Off”). The Spin-Off is intended to qualify as tax-free to Darden shareholders for U.S.U. S. federal income tax purposes, except for cash paid in lieu of fractional shares.

Following completion of the Spin-Off,We believe that we became 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 (“Four Corners OP”), a Delaware limited partnership of which we are the initial limited partner and our wholly owned subsidiary, Four Corners GP, LLC (“Four Corners GP”), is its sole general partner and our wholly owned subsidiary.

Any references to “the Company,” “we,” “us,” “our” or “the Successor”“our” refer to Four CornersFCPT as an independent, publicly traded, self-administered company. Any references to the Kerrow Restaurant Operating Business refer to the Kerrow Restaurant operations as owned by Darden for all periods prior to November 9, 2015 and as owned by us for periods subsequent to November 9, 2015.

The historical financial statements for the Kerrow Restaurant Operating Business were prepared on a stand-alone basis and were derived from the consolidated financial statements and accounting recordsreflect all adjustments which are, in the opinion of Darden. These statements reflect the historical financial condition and results of operations of Kerrow Restaurant Operating Business in accordance with GAAP. The consolidated and combined financial statements include all revenues and costs allocablemanagement, necessary to us either through specific identification or allocation, and all assets and liabilities directly attributable to us as derived from the operationsa fair statement of the restaurants. The consolidated and combined statementsresults for the interim periods presented. These adjustments are considered to be of comprehensive income include allocations of certain costs from Darden incurred on our behalf. See Note 4 - Related Party Transactions for a further description of allocated expenses.

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 certain other assets to be disposed of are reported atno financing contingencies exist which could prevent the lower of their carrying amount or fair value, less estimated costs to sell.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 certain criteria are met. These criteria include the requirement that 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

Exit or disposal activities includeIn the costsecond quarter of disposing2017, the Company also expects to sell one property leased to Darden for $5.2 million. The potential sale is from an unsolicited offer and would result in a gain 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 statements of comprehensive income as the original impairment.$3.5 million.

Other assets primarily consist of prepaid assets, inventories, and accounts receivable. Other liabilities primarily consist of accrued compensation, accrued operating expenses, and deferred rent obligations on certain operating leases.

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 on the balance sheets.

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 is recognized when food and beverage products are sold. 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 and combined statements of comprehensive income.

Restaurant expenses include restaurant labor, general and administrative expenses, 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. For expenses incurred prior to November 9, 2015, advance payments were made to Darden by the vendors based on estimates of volume to be purchased from the vendors and the terms of the agreement. As we made purchases from the vendors each period, Darden allocated the pro rata portion of allowances earned by us. We recorded these allowances as a reduction of food and beverage costs in the period earned. We considered the allocation methodology and results to be reasonable for the periods presented.

We intend to electbelieve that we have been organized and qualifyhave operated in conformity with the requirements for qualification and taxation as a REIT for U.S. federal income tax purposes commencing with theour taxable year beginning January 1, 2016.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 U.S. federal income tax on our net income that we distribute currently to our stockholders.shareholders. To maintain our qualification as a REIT, we will beare 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 stockholdersshareholders and meet certain other requirements. If we fail to qualify as a REIT in any taxable year, we will be subject to U.S. 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, U.S. federal income and excise taxes may be due on our undistributed taxable income.

We provide for federal and state income taxes currently payable as well as for those deferred because of temporary differences between reporting income and expenses for financial statement purposes versus tax purposes. Federal income tax credits are recorded as a reduction of income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date. Interest recognized on reserves for uncertain tax positions is included in interest, net in our consolidated statements of comprehensive income. A corresponding liability for accrued interest is included as a component of other liabilities on our consolidated balance sheets. Penalties, when incurred, are recognized in general and administrative expenses.

We estimate certain components of our provision for income taxes. These estimates include, among other items, depreciation and amortization expense allowable for tax purposes, allowable tax credits for items such as taxes paid on reported employee tip income, effective rates for state and local income taxes and the valuation and tax deductibility of certain other items. We adjust our annual effective income tax rate as additional information on outcomes or events becomes available.

We base our estimates on the best available information at the time that we prepare the provision. We will generally file our annual income tax returns several months after our year end. Income tax returns are subject to audit by state and local governments, generally years after the returns are filed. These returns could be subject to material adjustments or differing interpretations of the tax laws. The major jurisdictions in which we will file income tax returns are the U.S. federal jurisdiction and all states in the U.S. in which we own properties that have an income tax.

Tax accounting guidance requires that a position taken or expected to be taken in a tax return be recognized (or derecognized) in the financial statements when it is more likely than not (i.e., a likelihood of more than 50 percent) that the position would be sustained upon examination by tax authorities. A recognized tax position is then measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement.

We include within our current tax provision the balance of unrecognized tax benefits related to tax positions for which it is reasonably possible that the total amounts could change during the next 12 months based on the outcome of examinations.

Prior to the Spin-Off, our restaurant operations were included in the consolidated federal income tax return of Darden, as well as certain state tax returns where Darden files on a combined basis. Darden, the predecessor of the Company for accounting purposes (“the Predecessor”) has applied the provisions of FASB ASC Topic 740,See Note 8 - Income Taxes and computed the provision for income taxes on a separate return basis. The separate return method applies the accounting guidance for income taxes to the stand-alone consolidated and combined financial statements as if the Predecessor was a separate taxpayer and a stand-alone enterprise for the periods presented. The calculation of income taxes for the Predecessor on a separate return basis requires a considerable amount of judgment and use of both estimates and allocations. We believe that the assumptions and estimates used to compute these tax amounts are reasonable. However, the Predecessor’s financial statements may not necessarily reflect its income tax expense or tax payments in the future, or what our tax amounts would have been had the Predecessor been a stand-alone enterprise during the periods presented.

See Note 109 - Income TaxesEquity for additional information.

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)units (“PSUs”)), forfeitable dividend equivalents,equivalent units (“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, less estimated forfeitures. No compensation cost is recognized for awards for which employees do not render the requisite services.

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:

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”, which supersedes the existing guidance for lease accounting, Leases (Topic 840). ASU 2016-02 requires lessees to recognize leases on their balance sheets, and leaves lessor accounting largely unchanged. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early application is permitted for all entities. ASU 2016-02 requires a modified retrospective approach for all leases existing at, or entered into after, the date of initial application, with an option to elect to use certain transition relief. We are currently evaluating the impact of adopting this guidance.

In MarchAugust 2016, the FASB issued ASU No. 2016-9, “Compensation—Stock Compensation (Topic 718): Improvements2016-15, "Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments." ASU 2016-15 provides guidance on certain specific cash flow issues, including, but not limited to, Employee Share-Based Payment Accounting,” which amends how companies accountdebt prepayment or extinguishment costs, contingent consideration payments made after a business combination and distributions received from equity method investees. ASU 2016-15 is effective for certain aspectsperiods beginning after December 15, 2017, with early adoption permitted and shall be applied retrospectively where practicable. We do not expect adoption of share-based paymentsthis guidance to employees. The new guidance will require all income tax effects of awards to be recognized in the income statement when the awards vesthave a material impact on our consolidated financial statements or are settled. It also will allow an employer to repurchase more of an employee’s shares than it can today for tax withholding purposes without triggering liability accounting and to make a policy election to account for forfeitures as they occur. We are currently evaluating the impact of adopting this guidance.related disclosures.

Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash and cash equivalents. We are exposed to credit risk with respect to cash held at various financial institutions, access to our credit

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

For the three months ended March 31, 2017 and 2016, we recorded approximately $4 thousand of income and $348 thousand of expense, respectively, of hedge ineffectiveness in earnings attributable to zero-percent floor and rounding mismatches in the hedging relationships.

The table below presents the effect of our derivative financial instrumentsinterest rate swaps on the statements of comprehensive income for the three months ended March 31, 2017 and 2016.

During the three months ended March 31, 2016,2017 and 2015,2016, our income tax expenseprovision (benefit) was $(80.6) million$45 thousand and $19 thousand,($80,556 thousand), respectively. The income tax benefit recognized during the three months ended March 31, 2016 was principally the result of the reversal of deferred tax liabilities associated with activities no longer expected to be subject to federal taxation as a result of our satisfaction of all requirements and our intention to elect to be taxed as a REIT commencing with the year beginning January 1,ended December 31, 2016.

At March 31, 2016 and December 31, 2015, the Company was authorized to issue 25,000,000 shares of $0.0001 par value per share of preferred stock. There were no shares issued and outstanding at March 31, 2016 or December 31, 2015.

At March 31, 2017 there were 63,264 RSUs outstanding, and profits that are required to be distributed for7,096 had vested and were distributed. There were no RSUs granted during the period from November 10, 2015 to Decemberthree months ended March 31, 2015.

During the three months ended March 31, 2017 and 2016, there were 59,881,27044,657 and 51,209 shares of restricted stock as well as dividend equivalent rights granted under the Plan, respectively. There were no RSAs forfeited during the three months ended March 31, 2017. These shares generally vest over a three-year service period. Unvested restricted stock awards at March 31, 2017 will vest at varying times through 2019.

During the three months ended March 31, 2017 and 2016, there were 63,538 and 68,468 performance shares as well as dividend equivalent rights granted under the Plan, respectively. The performance period of the grants run from January 1, 2017 through December 31, 2019 and January 1, 2016 through December 31, 2018, respectively. Pursuant to the performance share award agreement, each participant is eligible to vest in and receive shares of the Company's common stock issued and outstanding.

The fair value of the note payable (Level 2) is determined using the present value of the contractual cash flows, discounted at the current market cost of debt.

During the three months ended March 31, 2017 and 2016, we operated in two segments: real estate operations and restaurant operations. Prior to the Spin-Off on November 9, 2015, we operated in one segment, restaurant operations. Our segments are based on our

The following tables present financial information by segment for the three months ended March 31, 2017 and 2016.

The following table presents supplemental information by segment at March 31, 2017 and December 31, 2016.

The Company reviewed its subsequent events and transactions that have occurred after March 31, 2016,2017, the date of the condensed consolidated balance sheet. In the second quarter of 2017 through May 4, 2017, the Company borrowed an additional $36 million on the revolving credit facility. The Company also invested $35.1 million in acquisitions of sixteen restaurant properties located in eight states. These properties are 100% occupied under triple-net leases with a weighted average lease term of 20.0 years. The Company funded the acquisitions with cash on hand and funds borrowed under the revolving credit facility. The Company anticipates accounting for these acquisitions as asset acquisitions in accordance with GAAP. There were no contingent liabilities associated with these transactions at March 31, 2017.

There were no other reportable subsequent events or transactions.

Four Corners Property Trust, Inc. (“FCPT”) is a publicly-traded Maryland REIT thatwhich owns, acquires and leases properties for use in the restaurant and other retail properties on a triple-net basis. Our primary goal is to create long-term stockholder value through the payment of consistent cash dividends and the growthfood-service related industries. Substantially all of our cash flowbusiness is conducted through Four Corners Operating Partnership, LP (“FCPT OP”), a Delaware limited partnership of which we are a majority limited partner and asset base. To achieve this goal,our wholly owned subsidiary, Four Corners GP, LLC (“FCPT GP”), is its sole general partner. 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 pursuecontinue to operate in a business strategy focused on opportunistic acquisitions and asset and tenant diversification. manner that will enable us to maintain our qualification as a REIT.

In addition to managing our existing properties, our strategy includes investing in additional restaurant and food service real estate 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 and occupied by durable restaurant concepts, with creditworthy tenants whose operating cash flow 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 restaurant operator profitability compared to rent payments and have absolute rent levels that are not artificially higher than market rates.

In the three months ended March 31, 2016, our undepreciated gross2017, FCPT acquired nine properties in six states for a total investment in real estate totaled approximately $1.4 billion. 

The following discussion includes the results of our operations for the three months ended March 31, 20162017 and 20152016 as summarized in the table below:

During the three months ended March 31, 2016,2017, we operated in two segments,segments: real estate operations and restaurant operations. Our real estate operations began on November 9, 2015; accordingly, no comparison to prior periods with respect to this segment is reported. OurWe recognize rental income was generated from the rental streams associated with the Leases which we recognize on a straight-line basis to include the effectseffect of base rent escalators.

General and administrative expense comprisesis 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 expense decreased approximately $0.5 million from the first quarter of 2016 to the first quarter of 2017 primarily due to a decrease in one-time expenses associated with establishing initial business operations that were incurred in the first quarter of 2016.

During the three months ended March 31, 2016,2017 and 2015,2016, our income tax expense (benefit) was $(80.6)$45 thousand and a benefit of $80.6 million, and $19 thousand, respectively. The income tax provision for the three months ended March 31, 2017 is primarily due to income taxes incurred at the Kerrow Restaurant Operating Business, a taxable REIT subsidiary. The income tax benefit recognized during the three months ended March 31, 2016 was the result of the

The preparation of Four Corner’sFCPT’s consolidated and combined financial statements in conformance with accounting principles generally accepted in the United States of America 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 Four Corner’sFCPT’s critical accounting policies is included in our Annual Report on Form 10-K for the year ended December 31, 20152016 in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies.” Management believes those critical accounting policies, among others, affect our more significant estimates and assumptions used in the preparation of our consolidated and combined financial statements.

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 and combined financial statements, included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

At March 31, 2016,2017, we held $36had $18.1 million of cash and cash equivalents. Total capital included $437equivalents and $305 million of equity capital and $400 million associated with borrowingsborrowing capacity under the term loan of our Loan Agreement.

We have a shelf registration statement on file with the SEC under which we may issue secured or unsecured indebtedness and equity financing through the instruments and on the term loan and no amounts outstandingterms most attractive to us at such time. During the three months ended March 31, 2017, we sold 49,900 shares under the revolving credit facility.ATM program for net proceeds of approximately $985 thousand (after issuance costs). The net proceeds were employed to fund acquisitions, and for general corporate purposes. At March 31, 2017, $148.4 million in gross proceeds capacity remained available under the ATM Program.

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 levelasset-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 facilityCredit Facility or other indebtedness. In the future, we may also acquire properties by issuing partnership interests of our Operating Partnershipoperating partnership in exchange for property owned by third parties whichparties. Our common partnership interests would be redeemable for cash or shares of our common stock.

We continually evaluate alternative financing and believe that we can obtain financing on reasonable terms. However, we cannot be sureassure you 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 triple-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.

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, 2015,2016, as filed with the SEC.

At March 31, 2016 there were2017, we had no off-balance sheet arrangements.

The following table presents a reconciliation of GAAP net income to NARIETNational Association of Real Estate Investment Trusts (“NAREIT”) funds from operations (“FFO”) and Adjusted funds from operations (“AFFO”) for the three months ended March 31, 2017 and 2016.