Bought FCPT this week. IMO, a safety pick. Their leases are mainly to restaurants -- DRI, EAT, Burger King. A bit over-concentrated there, but the lessees are all doing fine. And FCPT brags that they avoided drug stores, movie theaters and others. They are actively reducing concentration risk. And FCPT seems to have structured the leases to be safer than normal NNN via ground leases and whatnot. (clip 1).
+ Just announced a 3.2% div increase.
+ Dividend yield 6% now.
+ Expected FFO growth in 2026 is 4%. (2025 FFO $1.70 and 2026 FFO $1.77).
+ P/FFO decent at < 14.
+ 7.1 year average lease term.
+ Debt fine.
+ Restaurant income around 10% of total income. Leases 90%.
In November 2015, FCPT was spun out of Darden Restaurants as an independent, publicly-traded REIT. We operate seven LongHorn Steakhouse restaurants pursuant to franchise agreements with Darden Restaurants.... 75% of rents superior to regular triple net leases. These include the properties with high rent coverage (Darden and Chili’s), ground leases, master leases, and investment grade guarantors or operators... ~99% of rent collected since inception, including throughout COVID.
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AI generated:
Why Ground Leases are Valuable to FCPT. Ground leases are considered one of the safest forms of real estate investment:
A. Extreme Safety and Strong Tenant Incentive. Ground leases offer an additional layer of security beyond a standard net lease. If the tenant fails to make the ground lease rent payment to FCPT, the tenant risks losing not only the use of the land but also the entire building they own on that land. This makes ground lease rent payments incredibly stable, significantly lowering the risk of tenant default for FCPT.
B. Long-Term Residual Value and Reversion. Ground leases ensure FCPT retains control over the most permanent part of the investment—the land.
A crucial feature is that when the lease expires, the land and all improvements (the buildings constructed by the tenant) typically revert to the landlord's ownership, unless a renewal or purchase option is exercised.
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Actually, I am not quite sure what this means. Especially since 10Q says this:
As of both September 30, 2025 and December 31, 2024, the Company had finance ground lease assets aggregating $13.9 million and $13.9 million, respectively. These assets are included in intangible real estate 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 terms ranging from 58.2 years to 93.2 years. All but two of these leases have options to extend certain of the lease terms for additional ninety-nine year terms, and all have the option to purchase the assets once certain conditions and contingencies are met. The weighted average remaining non-cancelable lease term for the ground leases was 88.3 years at September 30, 2025.
A lot of DRI.
but no worries, DRI's EPS fcst solid.
(PE 17. Div yield 3.4%)
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