Essential Properties Realty Trust (EPRT) 26 Oct 232023 Q3 Earnings call transcript

Good morning, ladies and gentlemen, and welcome to Essential Properties Realty Trust Third Quarter 2023 Earnings Conference Call. [Operator Instructions] This conference call is being recorded, and a replay of the call will be available two hours after the completion of the call for the next 2 weeks.[Operator Instructions] Additionally, there will be an audio webcast available on Essential Properties Realty Trust 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; Mark Patten, EPRT's Executive Vice President and Chief Financial Officer; and Rob Salisbury, EPRT's Senior Vice President and Head of Capital Markets.It is now my pleasure to turn the call over to Rob Salisbury. Thank you, sir.

You may begin.

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

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

interest for and Properties. Rob, us joining Thanks, today you is thank in Essential who everyone your to

some broader noting slowdown middle-market coverage that consumer recent X.Xx. of activity. we of third are stability portfolio our at As perform a reflected report growth-oriented that areas perform tenants months, solid strength unit impacted sector, our well to level rent by investment continues results, in well of continued our by strong as another and our Despite favorably to quarter the to pleased was our driven and release earnings the indicates, by remained quarter strong

fungible these operators flow generate remained service favorable process, to of that experience-based underwriting growth, and cash X.X% our Our health testament growing operators. our strong for granular and vacant owning and focuses which same-store a overall on durable which and industries just is properties rent at and three portfolio properties.The disciplined

from a rely transactions XX their consumer from a provide proposition that experience value rate XXX% sale-leaseback not transactions quarter, we properties and existing average low tenants in those environment.In separate relationships. Our with XX XX% tickets acquired demand third financing therefore, that generated headwinds do rising not the of customers with do on to opportunities generally were strong

Our term XX.X with yield GAAP a which rate third escalation X.X% over an annual improving average leases lease in reflect primary and X% environment today pricing X.X%.With cap average and cash base rent our an competitors business establishing investments sheet expect of conservative share of weighted we $X.XX, in which these term remain an and rates results middle-market of driving in XXXX active rate, quarter liquidity guidance for those years, the alternatives favorable of sale-leaseback limited the in average up committed and midpoint lease the cost the higher we initial implies shortly cap great to shape, growth per to maintaining as operators, position.We strong midpoint. at as will are Mark private $X.XX near our term.Our of profile X% remains credit balance a the persist for to in leverage environment to rate a AFFO discuss arena

generally new volatile an near continued Our healthy a higher a backdrop expectation the capital of tempered in performance XXXX cost an of investments, term. capital on reflects improving pricing guidance for by and and markets continuing portfolio

am Notably, cash is our pleased retained company I tenant provide deployment reliance of nearly our in were We ended our net tenants is at the XX.X% the healthy the $XXX rent profile than of year-to-date strong portfolio. to midpoint estimate retained operating on the in into our additional growth cash additional to Importantly, without capital assumptions, payout our dividend our guidance.Turning leased we and of capital any rate markets.Combining favorable capital our in deployed industries. flow, can conservative ratio, supported per without pipeline of forecasted investment any what and our accretively our AFFO X,XXX could credit XXXX to markets reinvestment that free higher XX escalators, leverage achieve capital. grow properties can quarter nearly low that to requiring the opportunity portfolio share implied with X% the million note XXX in a external be the developments by flow

quarter and third point significant operator operating by challenges headwind businesses in health million of properties.Specifically, decrease Our term did and From unique the a was by quarter of due stood our collect Xx bankruptcy years, point gym of in remained operated tenant rent coverage remained percentage X% quarter's from that with restrictions a had our which XXXX, $X Like growth rent tenant, on basis somewhat same-store experienced represents the properties our the quarter.Our weighted I end.As the average many only last XX broader operating perspective, this noted, totaled health although the net lease basis expiring at of book than ABR totaling less impacted was of ratio other through at X.X% at the our only Oregon, value. in growth pandemic rent level Oregon. in XXXX. from consistent not that a which XX just rent favorable quarter XX.X ABR particular Oregon, in context fitness of coverage of longer imposition end from two a operator second rents this a unit-level of we X.Xx, our was portfolio to X.X%, at

these was were a at our properties quarter tenants our to average the master properties addition, unit to level ongoing in of our investments of of perform invested The fitness expect million. $XXX through and transactions targeted unit given that our were replacement and We XXX% our portfolio in representing XX% sale-leaseback and completed as we a as originated this of recoup property requirements.In our quarter, our well economics. of was with separate rent amount evidenced XX structure. the industries. a industry million In properties of a continues investments coverage of $X.X XX form on third weighted financial reporting lease direct and X.Xx, per investments, health transactions rent XX lease coverage find investment tenant-specific X.Xx.Regarding the average We view event by tenant level meaningful

attractive the to fourth with is remain investment against with potential rates capital-constrained the capital levels today.Specifically, in becoming active with pipeline relatively should and middle ahead our the terms. for initial activity initial underlying as for support rates our backdrop improvement increasingly cap range lease our further investment cash expect the Looking cap recent consistent we market high businesses X% in quarter, we strong

quarter largest childhood quick education, industry service quarter.Our restaurants. last and basis our were our Looking breakdown industry which points down largest industries at medical/dental early is from carwashes portfolio XX end, at ABR, XX.X% of remained at next

just represented tenants equipment of at Our continue share, ABR demonstrate in portfolio, And largest the end. tenant, of quarter accounting ABR. X.X% for our our to our XX.X% top-XX diversity

the rent fungible properties The superior on we consistently view, away a investment sold industry, capital we properties proactively important market on benefit strategy, unit terms discipline, and an reduce this X.Xx. sold our middle call identifiable we an that risk-adjusted to of important Owning aspect discuss focus for stated, set balance and our sheet X.X%. from weighted the accretively of diversity our capital and at within tool generate in an will yield manage a returns.In us markets expect quarter we've support risks, of that, and risks market XX the rated which our take portfolio to importantly, unit risk to opportunity over pricing our tenants for who it of quarter Mark, dispositions, capitalizing our of differentiated activities. relationships.With mitigation liquidity our recycle million portfolio.Heading investment cash for third the coverage advantage allows average you for net fourth average to a properties level to weighted results favorable selectively and and direct were liquid through like $XX.X industry As tenant turn proceeds tenant the operators, into and, operating take us quarter, in is and our our noncredit product concentrations is I'd and level expansive offers of and

portfolio results share million quality for our tenancy, same our per internal a certainly to to basis investment to third range period our per rent and XXXX, growth quarter quarter preceding on benefits reflect of external nominal our aspirations XXXX. moment, evidenced night the $XX.X QX balance a XXXX.On X% represented up $X.XX. our our up for the $X.XX, the Among second a XXXX compared differentiated Echoing of increase versus for quarter share favorable last strong which in platform.As increase the an AFFO night XXXX the quarter our of guidance last and basis, Pete's Thanks, in third share XX% The over support liquidity the of headlines strong totaled of of results of remarks, over $XX.X high continue and for Pete. diluted a and quarter an third increase position to the transactions, our by million growth conservative AFFO by our XXXX. fully a to the per consistent performance sheet of quarter, $X.XX beyond. XX% an and in was and That's in market investment our AFFO was continue the XXXX us, for of of was for our cover consistently I'll reported capital

versus the $X of diluted We XXXX.Total of totaled QX the on also for XXXX, G&A approximately a million reported quarter. XX% fully core FFO in third $X.X an basis per in million quarter, G&A of cash share while per QX third increase share was $X.XX

$X.X a expectation will that X.X% balance growth the by revenue as highlight quarter our gross our supports markets assets basis further as Importantly, quarter. an platform million assets our third the the G&A through quarter, to to operating capital I'll in investments of perspective, growth From decreased first third percentage which we generates our following. scale.Turning With quarter, at $XXX reached net and excellent billion leverage in of benefits our earnings nearly a total our be cash outpaced G&A had of the our our end. in sheet. the income-producing rate

personnel February to the our that equity in XX%, at by $XX an to on an basis. as-needed executed generating gross million to buy-side equity follow-on a and We're this firm. and leading large successfully offering, estate XX forward to to most Rob Markets.Rob continue was of brings long-term draw teams, approximately at shares we're the background, and million able experience investing approximately hired us $XXX we upsize help basis, to capital value pricing top-ranked pleased senior us a estate and side, platforms equity leader recently our which were our fortunate real and an private Firstly, sale as as transaction front, on on XXXX excited Salisbury flexibility proceeds.Similar for on research overnight offering have credit September including affords have equity build securities finance completed the the share real Head extensive shareholders.On Rob of we XXX% down Capital per a

we proceeds the debt we the approximately million $XXX as previously On in settled shares end.On during August. on term million, of $XX quarter, remains $XX of and an XXX,XXX July million which this quarter additional loan in for we ATM quarter, the delayed sold announced unsettled the side, closed program draw

entire appreciative XXXX near-term are of We which continued our to We expire participated year. next to in set $XXX debt the April closing term in our all retire bank group, of utilized only very the execution. this million of maturity at whom loan, support was of

had at of million term XXXX.At exercise February remaining we October. extended $XX mature and average the fully the the subsequently million we weighted us, quarter fixed program, hedging to drawn $XXX with rate a term $XXX X.X%. would on available the the of the XXX% fully we million loan, rate options drew drawn amounts Consistent the interest of term Assuming in we commitment our debt extension for end, in loan of swapped

favorable noted As fixed an effect into the million to XXXX of repay, hedge swap we last X.X%. call, effective on $XXX quarter to remaining through the forward million which our rate loan, linked that approximately term term XXXX earnings currently April will just has at rate loan to the of we retained we X%.Subsequent on term end, swaps the the starting we the of extend $XXX in new which fixed XXXX an all-in of go executed under

perspective, quarter guidance.Regarding in XXXX factoring in our debt all We a leverage end settling as was would at mentioned, would extension result no net having date the our the the would, new I X.Xx until When basis in we to adjusted our result loan, at EBITDAre quarter, term issued we XXXX.From on options generate maturity in net the in this end. million annualized proceeds forward of our debt that have leverage equal utilizing $XXX XXXX, which equity within maturities us a by quarter X.Xx. maturities, debt in the a incorporated

third approximately at continues our I'll million conservative position of from our $XXX.X and of Our million, turn to over plans last be leverage, to fund pipeline of Again, to the balance quarter quarter. the end remainder significant the liquidity current $XXX our for sheet growth $XXX year.With sufficient Pete. total back liquidity and supportive that, the up investment call totaled million external the strong

please Operator, Mark. the Thanks, open for questions. call

first The Instructions] from of [Operator question line St. the Haendel comes

Juste with Mizuho.

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very Listen, we run a predictable business.

very of us a leases that have stable provide a portfolio long-dated operating We base. great

us. We on we have significant our large also balance flow available well-priced to And It's invest. free amount a to generate of capital sheet. cash

the our timely given for have we so and broad we appropriate and business so predictable, cost it factors baked our felt capital guidance. largely capital the was and And that in XXXX, of that those is needs

a if grow completely how And assume do can scenario shut just you transaction you next think markets you year? are much FFO down, worst-case and

you take Mark, why don't that?

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is component. So going biggest in the be the of what quarter 'XX do we fourth to

a and secondary for embedded obviously, milestone which rent Our $XXX us. element retained our be pretty capital, nearing the million, then Pete is is bumps which would redeploying mentioned significant

our those three and really into you you'd be like just that got just components built X% growth. we've swap around under headwinds So other the things forward starting, probably the

and our I see up, invest, deploy driving cap a we've rates would great we to been accretive with actively to and we capital add, relationships are spreads. market at engaged

dislocation the in capital our for we see us of So the at no and on sitting a by means work capital hands markets on not opportunity put to advantage taking spreads. contrary, the great accretive to

from the with of comes Wolfe line question Citi. next The Eric

spread Maybe It's in What Joseph of rates guidance of guidance? the actually to Nick XXXX following here with thinking terms are investment to of the get Eric. cap just up XXXX embedded there? on that What's you in assumption assumptions. midpoint terms

work capital persist earlier, what we're and that assumptions already to rates question least of kind large assume the half And capital the today that work at we rates Generally, persists on is we in on one, and of that and And putting punted that of in. wide we did of the to at we ability as said priced guidance. part first already we that as get form XXXX. I that's in that supporting and generally to specifics there's that the a we that, equity the our term forward the Listen, do, the highXs. of range loan of through the swapped, cap put investment that priced we're a is seeing in level

can the components, kind but you do it. how we're think thinking I of so that's And on those about math

going on deals how of middle-market looking versus about about other then talk these the on you that That's may those are doing they're Can back, tenants. conversations that desirability sources thinking mentioned today, you at? of be helpful. just those kind capital sale leasebacks going some And of you

this theme one, been And and challenging quarters, is two, an Yes. has couple to and improving last us but access. of evolving the for over market the costly bank

deals what unsecured on you then plus we're talking that. the And can wider. X, look wide get about of And even sub-investment-grade getting at that basis market SOFR even X, about you so when today, that's think if X, XX-year are you're a you rates

struggling investments capital to their and and focused businesses. equity operators market And so with with alternatives middle permanent the real grow from largely against on long-term these owners estate the new capital are capitalize

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

Elmer actually is with on Chang This Greg.

types XX% of be the exposure grown With you've the they recent due see in talked don't to as selective? more to these attributes, with have to other last primarily about maybe offer industry credit similar be require to selective deals do growing So carwash from in quality ABR the in portfolio in businesses term quarters, and you the on flow but provide. X XX% to types cash near years, as what of the that you going you to, of stability you having

dining. All as a relationships we real conduct are we generate sourcing very and be will that portfolio in on relationships I opportunity be XX% expect mix investment these is activity to continue and with industries And XX% That to is inherent means to education. be childhood is industries. early those your out ratably, run we're in car of XX% range. result, to be going washes, which our investment whole source to to we'll have discipline Quick-serve to would like invest relationships that range.We'll those and we coming continue a selective such XX% service, prior our from seeing. of to of allows designed on that will to to the portfolio. in a focused that relying automotive set like. lot restaurants, casual is business your people an that you characteristics of look prior your activity those XX% that opportunities say grow estate is and Generally, When incremental to our invest selective in tell what relationships, kind us transactions that that amongst business XX%

watch And quarter incrementally seems during maybe or the if list. improved at your it I can touch It was stable. on least

look next a you year, you industries believe you impacted ahead to or most if would there's of a give weaker tenants sense As could which us be consumer?

a lot say we've as of stable Not would I and to through number industries cycles pretty tend consumer really perform to casual now seen our by dining, never of this period industries is really we the hardest would What a discretionary design. And through usually are these stress. consumer distress. a the stable through perform expect and only portfolio we of area, we consumer the it and it's deep, see see but but in fastest that

The next the comes Evercore Sanket ISI. line of from with Agrawal question

percolating I just childhood there wanted the many how any sector exposure then some sector? what that? Like trends funding portfolio? you're education to that and also understand, color different represent from seeing in credit side PE exposure the issues early the like, average tenants in then get around that ABR in particular and And is particular

own Generally, we childhood about currently XXX education centers. early

already to that up regional see localized a that the such trends and with sector credit we Busy You purchased sale-leaseback the PE Generally, investments. large Actually, roll came is Busy brand. of continues the with. name a see What's our a which lot that had the quarter and coverage our is a in operators can into operator BrightPath Bees smaller we local corporate, of in that the that in see XX. improving is Bees good Kids trends the we top done improving smaller operator

Securities. comes question the next with Kim line of Bin The Truist from Ki

that in is more key of about noticing higher if to expect XXXX, that or a industries? it talk couple was just I curious concentrated broad you spectrum yields into going you a When you're

No.

a broad is the our think of to is pricing that the drive all our capital ability industries markets equally. in I more dislocation affecting factor

our really of opportunity it's the set. so And board across

losses? think And you what you credit in to in your for I the terms portfolio. points guidance, XXXX assuming are the past, is basis normal said XX of for XX

Just to curious how that? XXXX compares

take loss in the build guide, said Generally, of particularly basis have the we in and backdrop a as What that tenants there. more conservative when we into experienced. XX is little kind and than what a bit our go happen and to this real we're through deep Yes. advance XX seeing, market points individual dive far may exposures historical is and a we we're that that

that's guidance those range historically, little So assume losses. you manifestation the in scenarios, wider our is tailwinds of to the a throughout the baked is guide than the a probably year lack that. of But can of

Siversky The next Connor Instructions] line comes Wells question Fargo. the [Operator of from with

Connor weakening metrics, Susan In of consumer credit thinking morning. for context we be this how tenant about the should here. specifically

resiliency exhibited of during they drops spending can How the the consumer So feel EPRT's off? environment. expect COVID performance kind same comfortable if portfolio we

you a larger It's of that than the if drop-off that a performed we time. in through COVID. where imagine premise with hard And consumer well to spending portfolio the start saw see scenario you during period

we but subject many very And discretionary I of can think consumer. that going these and I understand investor I the ultimately continue flow is not look landlords. the the these sectors of forward. a and on the very are landlords in ultimately, think owning at going specific a take have that and set we're to easily the them we really say and an businesses, impact we assume in businesses you a would perform should are weakening equity that cash or that comprise not invest it are to assets companies to deliberately should consumer to values to of these industries weakening obligations a

I appreciate the color.

quick follow-up. Just a

had you the behavior choose risk to to one area, do you consumer think portfolio? your highest where If within is

Yes.

assets that the the hardest as when not such and losses. earliest said, out a tends be have hit. to credit see will hit would That down dining the That I in eat QSR any I would options. and biggest casual material to you less probably said, to that have expect recession and space get trade coverage great we good As consumers

line with next the Bank of the Josh And Dennerlein of from question America. comes

going if line I is plans trends. and XXXX the Granite again largely sourcing What and on touch thought Josh. your Farrell prefunding for acquisitions capital are stay maybe is on expected perhaps for strategy behalf to on to of with assumption process This in with capital into sourcing, historic 'XX? want of kind

was bottom end move Yes. our to the I number relative capital liquidity sourcing, availability we component mean we the that you with have of of revolver. what is, I started as a sourcing utilizing And is sourcing, us probably think range, really on really now. range that Otherwise, one, the anything of kind the do XXXX to guide. our we biggest through the that's capital the available

And I balance loan add, of built we targets. the the sheet, into capacity $XXX unsettled would without our given term forwards, have and almost have leverage we the investable our billion that capital million exceeding to $X

comes Street with next question The the Spenser line from Allaway of Green Advisors.

guys, you, next pump more it perhaps to all 'XX year? relates great the brakes just talk spreads you ultimately the grow how just about far that. for to Maybe you could before on compress Thank Can decided or one color acquisition guidance. just not as

stop forward I'd hard that. on number putting of short a look. We take a

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Xx times. X% a You've or net seen debt couple us EBITDAre to crest of

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not. do We

place our one to for would today. in We the was listen, thing best put in that, sit think us point, and have thought not we that we shares, have one then we in for do consider Board I to we not shareholders got but the place. as And if invest

no are to questions now for to comments. time. back There this like closing floor at turn further Mavoides I'd the Pete any over

Well, I'd like quarter. on a the great congratulate to team

going we at out conference in have coming great a XXXX schedules. about what our day. As you, we're to and we're the we're we look forward optimistic everyone to said, Thank happy seeing pretty guidance weeks forward, and and meeting have there,

concludes This conference. today's

this may time. at You disconnect participation. your Thank for your you lines