Essential Properties Realty Trust (EPRT) 27 Jul 232023 Q2 Earnings call transcript

Good morning, ladies and gentlemen, and welcome to Essential Properties Realty Trust Second Quarter 2023 Earnings Conference Call.

[Operator Instructions] This conferences call is being recorded. [Operator Instructions] Additionally, there will be an audio webcast available on Essential Properties Realty Trust's website at www.essentialproperties.com. An archive of which will be available for 90 days.

On the call this morning are Pete Mavoides, EPRT's President and Chief Executive Officer; and Mark Patten, EPRT's Executive Vice President and Chief Financial Officer.

to call pleasure Patton. to my now turn over the Mark It's

conference Properties you, And the today earnings everyone. Good second of you XXXX Thank morning, us thank operator. Trust. Realty for joining quarter call Essential for

forward-looking after from changes made. to and and disclosed reflect statements revisions and in were the During to considered the results yesterday's may these SEC Factors matters the detail time statements law. in risks statements company's discussed actual forward-looking make the earnings cause to may from to with results release. statements, company's time securities be actual greater federal in that that expectations could future this in we differ under differ filings will release materially call, are press The we those may certain not statements significantly forward-looking from

the Pete. With over that, call I'll turn to

your today Thanks, EPRT. Mark. joining is And us who thank to in interest everyone for you

we of second are stability portfolio our As perform report that strong strength impacted by investment continues results, exceptionally of our by strong another activity. and our favorably to quarter the to pleased and driven well release earnings indicates, quarter

to rent reflected level a at our unit X.Xx. by level Our high continue coverage tenants to perform increased that as

our Our of to businesses. based resiliency The disciplined just remained oriented the underwriting overall of same-store rent the operators is favorable service properties. and testament growth, process, and X and health portfolio vacant which at X.X% a of our our our experience quality

XX.X primary was weighted those annual on quarter those from term relationships. properties In leases XX% sale separate years lease the of which over transactions an transactions, generated average the and escalation the XX term, that existing in of XX% lease average XX cap leaseback our acquired X.X% initial investments in we were with was results of The second X.X%. second X.X%, quarter, yield average opportunities in on

leverage and of of with X.Xx our when conservatively account equity, leverage million. Our of X.Xx $XXX liquidity into and positioned taking liquidity remains remains forma approximately and forward balance pro quarter-end strong, sheet unsettled our

said, we've conservative a maintaining sheet. As to we're committed balance

quarter increased per our third our have $X.XX for visibility Based quarter our XXXX on we anticipated the investment to and guidance to markets capital a activity, range AFFO our second pipeline, share $X.XX. of of results,

Turning to in X,XXX XX the to XXX were portfolio operating leased we portfolio, the in ended quarter properties with XX.X% our industries. tenants that

ABR Our weighted our stood at years X.X% average XX lease expiring with XXXX. term only through of

that the rent our health of our tenant end. just level ABR than at a quarter consistent Xx rent level XXXX, quarter coverage percentage perspective, ratio had From X.X% X.Xx totaling at was coverage relatively less and unit end remained

in quarter XX of Regarding XX invested industries. rental, operated investments carwash, separate approximately our $XXX equipment and XX% properties properties With of investments, we our those XX grocery, the transactions, in representing dining casual million medical restaurants, industries. and targeted second in entertainment,

lease The XX.X average this term of quarter weighted our years. was investments

investment average on XX% As leaseback tenants ongoing our unit I weighted property investments reporting lease X.X%. properties rent coverage In remains of earlier, average were our $X.X transactions, of at financial escalation form completed the weighted sale The was direct million. these X.Xx, per was mentioned annual level with our originated quarter, at average strong through the requirements. rent and

In in addition, structure. were XX% of our lease master a investments

our should quarter, the to support consistent levels third activity. Looking active pipeline we recent remain with ahead relatively and investment our

end, the and ABR. tenants XX.X% our quick quarter medical largest at education our service From ABR carwashes at XX.X% of continue represented a industry diversity of EquipmentShare, demonstrate XX to for portfolio, perspective, was at office XX%, XX.X%, early industry ABR, perspective, an end, our X.X% at largest in XX.X%. at quarter by restaurants diversity followed From tenant, of dental childhood our accounting top at

diversity tenants tenant A risk middle focus risk a direct stated, noncredit mitigation tool our of view benefit market opportunity product rated investment differentiated consistently our is strategy. on us returns. superior and we've adjusted an generate for of an in and important operators, our and As offers sets, expansive which

million XX was In average sold X.X%. terms a properties of of this The average we the quarter dispositions, proceeds for for properties net in coverage rent level weighted we unit $XX.X yield cash at weighted sold ratio X.Xx.

manage our and on unit risks tenants and liquid capitalizing important discipline. of us portfolio. properties an to and aspect it investment Owning our level that within proactively is liquidity our allows And fungible industries,

as favorable our our XXXX, For away with selectively reduce our pricing of remainder identifiable and of quarter from take tenant relationships. accretively investments average, we advantage concentrations, support align capital risks, to to our X market the we importantly expect quarterly industry level of recycle

With capital call and that, operating balance quarter to you the who will our turn like activity. discuss our markets to through the over Mark, the take for I'd and sheet Mark? results second

quarter for night for us, for results continue of last the increase results Pete. reflect high to differentiated second Performance the and of quality bottom by of for our and certainly benefits by was of of remarks, Thanks, the our XXXX. investment internal platform. range portfolio XXXX full growth Echoing tenancy top and guidance Pete's quarter AFFO evidenced strong per our share rent our quarter our year the our consistent investment our in a the reported and of represented end

our external balance night share last per to implement second fully basis continue strong our was diluted and XXXX. a on per consistently quarter, the sheet in position, cover $X.XX. growth I'll headlines for the liquidity aspirations AFFO As share our Among which support conservative was for

basis, XXXX. On X% of versus totaled our AFFO That's million. $XX.X an of nominal a increase QX

period of XXXX, first quarter XX% preceding to the up in $XX.X increase XXXX. million of of and the same up X% over over compared that's XXXX, an quarter second the For

of recurring versus an one core excluding executives the XXXX. in cash a diluted X% second $X.XX while and FFO our of We QX of approximately totaled departure also G&A basis $X.X $XXX,XXX reported associated of of for junior million per approximately costs on in the XXXX. million QX G&A, with fully XXXX, quarter, was $X.X per increase QX share Total share of

this impact compensation expense, forfeitures. of our which adjusted the by We stock of the non-recurring AFFO core of reflects net $XXX,XXX, impact approximately

Importantly, in our revenue, X.X% QX percentage a G&A as basis XXXX. of total recurring decreased cash to

We percentage total have that recurring expectation to and a revenue continue full the as of rationalize to quarterly will basis. continue G&A our cash a year on

quarter our reached highlight $XXX the solid following. assets producing had Turning sheet, $X.X investments to a end. we an income quarter net perspective. balance billion of a From I'll With in equity XXXX, from capital gross million markets our XQ, perspective, nearly at our

second that million generated equity this overnight proceeds. in February year approximately of forward In in mid-May, of that net through an our $XXX.X settled half the we we offering issued

generated that of of also proceeds forward in approximately all from the quarter quarter. the ATM settled We prior program, latter $XX We basis. to part approximately second a sales million close on our was $XX of the million ATM gross of those the

I'd including million leverage, bank X.X personally term we like a options extension years. the loan from commitments with Turning to have our an unsecured tenure received that announce of $XXX group for

that's closing A term utilized draw our have retire delayed April of new million term at will XXXX. million in loan $XXX to a to $XXX mature due loan month feature be will X and

on term paid be off, have next term we April of we through will favorable loan the XXXX loan year. Although that retain swaps the will

swap be the that executing impact a the part will draws on X%. each of April of fixed XXXX the As are of new between potential we ranging extension rate and the estimating term X.X% swaps at to loan,

close intend in term We loan this to the year. quarter of new third the

pleased We're balance only our us but loan dry conditions. subject near appreciative with very near remainder debt let priced me XXXX. continued new also term investment to impacts to have to interest the the address we to attractively customary powder maturity the capital, term closing estimated our and term and further opportunity which Although, very note bolster address is of of support our not the of favorably that group the with closing of the sheet for costs, provides debt opportunities, bank

term in until which in XXXX. was a us our debt and maturity utilizing in having new all no options, a the Regarding loan maturities, result maturities date debt the result would XXXX, extension

quarter by quarter second equity settling remaining adjusted basis forward in was the a $XX we our regarding issued in we the Specifically, settled. to have not of million results, debt at that X.Xx net when physically second the the factoring on proceeds the XXXX generate we'll quarter end, EBITDAre annualized that yet

X.Xx. Our end equal would leverage at quarter

the liquidity at totaled Our of QX, end approximately million. total $XXX XXXX,

for leverage, the conservative sufficient remainder balance strong liquidity plans XXXX. supportive continues our pipeline investment to be Our sheet position current of and of growth external to fund significantly and our

our of losses per portfolio. performance, release the into tendency core our range the for the indicated, AFFO experienced to we year as middle visibility increased $X.XX which to not half and only the in the mentioned, share, Lastly year-over-year of implies pipeline, rate of first XXXX our for raised material no expectations performance per importantly, range our The nearly investment our guidance which and reflects our our our of credit investment X%. full guidance of strength midpoint growth share market But $X.XX XQ a Pete year.

Pete. I'll that, back over call With turn the to

our current transactions long-term capital of grow remains environment, investing the the capital sale-leaseback estate. Mark. positive the a very seek which them view, markets Thanks challenges to by constrained to leads face businesses In for their as real landscape on seeking operators executing

excited curtailed the challenging can market environment, fill of market half of particularly of has pricing operators. year. the We're we second the demand that invest about to the opportunities see in debt and the these capital availability Additionally, of participants number the

the call Operator, questions. please for open

line Green question comes first Our Instructions] [Operator from with Allaway Street Spenser Advisors. of the

rate might second have could wondering cap the just you provide in on just was guys industries you if observed trends quarter? some I any across commentary the different

and our pretty brought of cap of end tend that XX the kind a industry half year. second general, range really of and investments down market cap mix. would I We at which -- is expect a rates cap range in rate invest cap we of of on tighter the the the the be back is to did say, points, a number were would result quarter. that that stable, mix across Obviously, rate grocery of our But that static was basis rates the trade in the in the restaurants down. pretty generally, mid-X% to I that deals Yes.

color but you far on you any any of back or quarter? rates? color Is kind what thought for you're kind of of half you it there? of And as just terms to mean observed alluded Okay. just kind year, in expecting what I second thus the of you've in static provide Or the can the

Yes. to up. It's slightly static

deals second investing is a market, depending closes than pipeline and upon in. and actually Q, But what that quarter. it's what come XQ healthy in posted future pretty Our obviously, second stable. the it's a But we little that can higher change overall, pretty

creep haven't seen pressures cap rates in down. pricing driving We and

the year. throughout of So it's kind been pretty consistent

is Our the question Dennerlein America. Bank of Josh next of from line with

picture they're opportunities, about like a any Kind what for curious tenants Maybe you. your of their and kind what of seeing? just they're hearing? pain big points expansion question conversations with been have kind you're Just of curious feeling how

capital I their is capital to down on transacting relationships is And grow to of and lack good continue availability would Listen, volumes the portfolio's somewhat you constrained. to finding think partners who desire stable really the grow, Yes. that issues. credit I underlying overall are markets leaning of or guys and as rippling operations. through are the see and driving performance opportunities the said, say transaction and the That

and that sort are about aggregators operators healthy. So and feels feeling driving the it always companies prospects. their There's overall, of are volumes, growth good investment transitional pretty

particular active in that. segment more Any mode? expansion Appreciate that's

the I XX think, industries. I mean, quarter, our we invested XX of in in, Yes.

to from and opportunities and So, lot consolidation space, car see space our is for would in overall, last car wash from our and of perspective. grow of that certainly about four mature would we're us the you'll our the space across say little In car expect But quarters. over we a really there's seen quarter, has of a industry opportunities that pretty lot three, coming of spectrum. concentration in space, remains grown seeing ratably. childcare were wash with The have the the wash Certainly, I portfolio a that more the X/X robust investments I that restaurant the kind opportunities.

Scotiabank. Our question with comes line McGinniss next from the Greg of

is This on Greg. question. the For with Elmer

little far subsiding. but asset bit debt competition touched a up elevated over million How normal private given bit, still attractive slightly turmoil year-to-date cash this and $X to leverage banking has regarding that remarks that buyer volumes tracking a your in capital million $X size disposition and the but is You recycling requiring on QX you're QX? acquisitions? so has smaller of earlier changed that buyers regional in kept And XX% cost and at opportunity how for little in still are course a over

Got you.

do that certainty sale the say, And that retail sale-leaseback investor with not in current can't design, investor retail would we bid on that to operator with a I would the million by $X more I $X even is the leasebacks. say bid. sophisticated doing investor transaction execution First, The that is become requires dependent compete certainly, more by an retail the million financing generally leverage market. suspect leverage provide, transaction has

be more in that's a a investment. we aggressive portfolio buyers with against or investments. the get on on to segment organizational that's said the basis who So That little compete are of I call, struggling not do allowed our said, and competitive that debt we our as larger market to and more compete on capital us leverage

that terms And and we're that side the we're to is certainly, a the as In not of many are into a get, sell which volumes sell because those flip our sellers. markets. investment leverage is that it when challenge, as market, able down price-sensitive and that coin, assets, market we It's into huge of materially. is buyers our

move our of our of Given riskier the out assets some ability our and to portfolio. basis

up dried a that recycle capital portfolio. and So the robust market's allowing and to still but bit, keep it's us

capital, guess average. that a attractive you rationalizing in are the G&A a think your for investment X-quarter field up month you prepared due And on the bit above Got as seeing criteria to I course, our volumes growing it investment it. more environment I about mentioned little meeting remarks was And touched last follow-up, little potential a of sale-leaseback bit.

was G&A quarter-over-quarter. the of XXXX, it balance headwinds of think of investment anticipate that far? the thus and volume given on seeing down you're I Do you investment any level

answer no. short is The Yes.

we're the organization. are like really in for look the of their in out generally, in we as staff executives and executing investments to making vast continue and trained G&A the and are our seats majority We But staff and year. next more

wouldn't Mark, G&A. so And add on would normal out anything expect the that? on you I of anything

that's I think right.

I head and our like trend count pretty think said, stable. that is you

different. wouldn't I So anything expect

Okay, thank you.

you. Thank

Citi. next Eric from Please line comes the question of from Wolfe Our proceed.

saw opportunity in go It's growing typical conversations Joseph We versus new the actually Nick here from how opportunities you in the through the recent cadence relationships of up the of walk with acquisition of Eric. quarters these the and terms of relationships typically here? just terms

negotiated to operators, we've advantage engine against strike the we've and road. reliably growth that perform generally said the we Yes. those underwritten inherent in the we're gives and Listen, bring to and documents, balance credit competitive a really we of capital it wanted relationship, quarters, to our us on we we because down were we us they prior a our some as lean That focusing always servicing become have because would like have relationships the into existing maintain said, opportunities, new an relationships with when the opportunities. able relationships strike and

relationships. And doing strike quarter, in are able new the we deals. who some some There the market so are guys in to were

Some markets the sale counterparties alternative in people transacting and the no first leasebacks, of are drove and time longer because constraints them some capital of relationships market to other those other for active. and the financing are were have quite with frankly, them the

to they're so sourced a counterparty. find new And

want these forward. outset, continue that the businesses is at we're relationships help kind of transact process in those grow investment to for and operators make a we clear and it into to that relationship But guys going we term, make the long their with can we we such an underwriting a our

obviously, relationship with just And continued a in their does side tenants that where some maybe exists be other – in may have How you of dispositions properties? that growth terms of sales, quarter. the one have Appreciate sold Thanks. kind impact that. with the the handful with assets on the then where you those of

Yes.

capital to But is as and transparent is sensitivity open with a great as making we're sell some share that think continue grow is I invest a free them equipment their to business. continue there help sites, to. as them you're up to process capacity able long and really and to those that example and

a so manage beneficial. those to relationships generally And they it's exposures. And kind recognize mutually those collaborative manage it's and that of process

much. Thank you very

Yeah. Thanks, Nick.

Bin next line comes our Ki with Truist And proceed. Instructions] [Operator question of Kim the Securities. from Please

kind just you. the morning. Good certain Thanks. debt what market plans? in discuss more And the you're of a Mark, starting it bank pricing the seems forward swaps Can REITs. like in refinancing near little you seeing? future. for is Thank And cards if net triple available your

what I Bin. good it your think pretty mean, Ki a note, Thanks, analysis. days probably I look, X was Yes. ago,

us, then draws, or just -- forward But is But the kind loan the piece sort in seen as way re all is think with bank X% very do appropriate. we you remarks, pose was group you range. of frankly, the that we of are term was is swaps I For before even certainly, probably do pricing the of side consistent my supportive could which use fortunate swap, us, of swaps your And X.X% depends. for really our things. we've I to that in the terms from the in either. the It dynamic think pretty what forward

look you kind I X a So think look April the at you renewal -- or at if the number. X, probably ‘XX, that's extension in of the swap if swap

loan, that swap higher, forward that paying good to range. probably the was swap If relative the off do just mentioning. to doing match you prices think of it, the I where That's if XXXX the mix I draw, pretty is why a more X% that's the range we probably X.X% to draws a look term the within close when do but trench at we than when we

unit of terms I'm coverage, there side, was south slight much actually times level below X migration times a or And dynamic. little But your if the covered. sure what on in tenants you just a the some it can tenants for bit. how covered changed migrate flip have moving to type of high And Great. below not improved. that level, comment some on acquisition has maybe X.X

properties, industries only in same-store some credit back would They some like ability wages guys. price, and seeing going but push wage the those can we basis, and sales But the and there, increase a five, sensitive with what portfolio have the to we've us of not margin to negligent no pressures de-minimis on real-time seen some is And decrease a big But think restaurants loss. expect I of times migration have more that's with a healthy and year Certainly. you're of childhood to more goods. pressures education early six there. concern, the migrate The it lacked number nothing growth a X to Yes. you're overall, to start given slight seen I that price a do cost are also strong guys would kind and level. and the

line And the Haendel from our of comes St. next question

with Juste Mizuho.

the Ravi for This on Haendel. line is

that that you capital? an of of high capital Or incrementally less Just would as for improvement the the sale see clients question, would an feel as incremental banks more forward. liquidity starting you the starting the and Do versus we you to see there tenants the will say going that financing still going being be that to see in and forward? so are rates on we're still of form leaseback

Yes. I it's would the of latter. think more

accretive a think a borrower that. before is And If range, to unsecured kind a going XX%, to pricing see X%, market of normalized reverts what of the way borrowing more inside so middle to I of don't to you in that that. XX% materially. in there's they And still we changed sale-leaseback becomes while is long think sale-leaseback market normalizing think it be capital go it's I think that about I that's level that say, before and a

Okay.

today of percentage Just a What's your watch as one ABR? more.

B or basis Our coverage watch and as intersection points, risk or is of credit below X.X of single and XX that define percent below. of just level refresh, we list as ABR a the to

And which is so points, the currently basis that's XX level.

north Okay. is your I that. theater believe closure of

in So, are those gears most there included not those of metrics?

There'll certainly. numbers be in some those theaters

kind theaters our I couple think a that still are X.X below of of level.

than that of half our in is basis So XX theaters. more

Great. Got it.

operator? questions, more Any

No. session. the This concludes you. back to question-and-answer Pete,

then today. your Awesome. time the We Well, you appreciate concludes for that Thank it. call. all

you concludes participation. Thank for today's conference. your This

now your may disconnect lines. You