Essential Properties Realty Trust (EPRT) 15 Feb 242023 Q4 Earnings call transcript

Good morning ladies and gentlemen, and welcome to Essential Properties Realty Trust Fourth Quarter 2023 Earnings Conference Call. [Operator Instructions] This conference call is being recorded, and a replay of the call will be available 2 hours after the completion of the call for the next 2 weeks. The dial-in details for the replay can be found in yesterday's press release.

Additionally, there will be an audio webcast available on Essential Properties' 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 Chief Financial Officer, and Rob Salisbury, EPRT's Senior Vice President and Head of Capital Markets. pleasure the my Rob over now Salisbury. is to call turn to It

Good thank Earnings everyone, us you, morning, Thank operator. and Essential Fourth today Properties' you Quarter Call. XXXX Conference for joining for

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

and today you $XXX Thank interest per million thank strong invested AFFO quarter you, in proud X% to Properties. Rob. of the a markets year. in and volatility And joining resilience investments to full $X translated of the share This which for growth portfolio. serving finished differentiated of with testament for billion over a Essential variable to fourth your We spreads strategy markets, as wider XXXX of just in given in backdrop us the we bid-ask in everyone of industry are and the capital XXXX, heightened the the investment transaction our

focuses factors occupancy associated estate portfolio and properties result level corporate overall experience-based growing of and a performance operators and granular durable results estate rent and real portfolio on health with owning same-store able rent risk investing, and fungible The lease which high durable we're unit By growth to underwriting net cash on in credit, with underwriting exceptionally that of perform real of of focusing risk these of all quarter to and basis, for our strong portfolio at construct As operators. fourth our process disciplined a lease properties. X indicate, XX.X%, the and coverage an generate service our unit-level is industries flow of X.Xx, X.X%. level own and continues

diminished Regarding dislocation to strong they limited active as increasingly investments, year and support funding our in reliably consistent as and markets and grow our the long-standing us the market given businesses credit a of to in their continued the the bank relationships and capital level nearly availability of we we be historically the well provider wide competition valued turn $XXX risk-adjusted of consistent of tenant capitalize the trends remained in aggressively look net of lease creating and capitalized X.Xx investment opportunity to end investors. from forma leverage returns. activity balance sheet quarter continues our liquidity these that to continued on other million, are as to for With pro generate

XXXX implies are X% $X.XX, of of AFFO per midpoint. to at guidance our share affirming year-over-year which $X.XX We the growth

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

average our expiring from lease health X.Xx investment driven large ABR weighted through our in XXXX. was is quarter, a activity. part Our ratio X.X% only at quarter, rent year-end, slightly of XX tenant consistent year-over-year, level at by coverage this perspective, which average with term last From stood unit years weighted down

call. leasing our primarily by last quarter Our third positive quarter, improvement in results same-store in at was X.X% management discussed fourth the from activities, rent including we asset and operator in driven X.X%, earnings that a an the gym growth

noted power transactions million on for through the increase of yield X.X%, as earnings cash continued quarter, invested at During we a pricing representing we a average $XXX the last XX in fourth separate sale call. weighted leasebacks

Our The the no strategies. years, term with average of well-defined average notable quarter activity annual generating escalation from of investment lease departures the weighted across investment yield average X.X%, our industries, XX.X quarter broad-based weighted and was our an was was of X.X%. our GAAP most in investments this

a and Our of investments average of investment of average this unit per a sale-leaseback the quarter our financial was quarterly with key investments reporting level were strategy, our lease requirements. which lease to generated had form million. XX% existing are master investment weighted Consistent relationships. with from and X.Xx ongoing coverage rent originated provisions property $X.X our transactions, XX% through XX% direct tenet were contained subject

closed X, million and quarter of become sources at of capital we middle leaseback remains market increasing financing seeking sale our of of number date to a other a first uneconomic. investments XXXX, cash as an $XX.X yield companies alternative robust have pipeline the as to unavailable of ahead or above are have Looking slightly capital as

power on cognizant of capitalized the lease monetary power in financial the from conditions, our for in have year, in alleviate rate commensurate generating we the of dislocation environment. terms, are course we diminish a bringing policy pricing potential the XXXX, While a markets, could cap we reduction this maintained. with favorable is our over heightened private of which net cost easing credit pricing would spread that with capital lower hope later such investment Should debt it our to benefit

the our today in ABR transactions, largest unrated offers provider, which concentration investment our our current should ABR. sale-leaseback us, cap risk expansive capital tenants pipeline suggests afforded term. a a for Tenant opportunity tenant time our now of mitigation which able set. tool and quarter is tenants it focus of our direct XX.X% market market differentiator only generate at near rates said, diversity a is are our account to of and on we being top XX for X.X% an stable excess That in a be important an us the dynamically operators, and benefit end, tenant pricing. has and middle of investment perspective, As price that ability value-added over to returns From represents

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

past, owning have mentioned proactively an fungible the of as our to industry, risks us we aspect in investment As portfolio. properties discipline tenant liquid within important is manage and it and allows the unit-level

to activity like ongoing we CFO. X-quarter over near expect line by our Patten, remain forward, opportunistic Mark? the that, With trailing I'd management to Going to call driven term disposition average and activity. our our the relatively asset in sales turn over Mark with portfolio

and everyone. Thanks, morning, Pete, good

quarter. the strong quarter per was versus a As investments increase $XXX X% reached of share, a rate. $X.XX. from our million Pete had of That's at of cash cap headlines great which the fourth AFFO noted, which we a by Among was level punctuated quarter, an X.X% for performance line million same our QX of nominal expectations XXXX. This was basis, over our our the quarter. when with That's of AFFO guidance totaled million in $XX.X up On a we last in XX%. XXXX, updated AFFO an period $XX the nearly increase

to in increase per full XX, with by per G&A nominal over X% million XXXX, increased increase XXXX. million. For totaled XXXX, is year year $X.XX the for relating AFFO XX% an our expense. in Total the versus in which the XXXX XXXX, share, increase the $X.X totaling was of period an QX XXXX basis, full $X.X compensation December million of of a same majority share $XXX.X our AFFO ended over On

percentage the as of and XXXX, the X.X% compares G&A a Our full for and year of X.X% X%, quarter favorably X.X% year total which for the the recurring revenue XXXX. to quarter and for was of cash respectively, full

generates G&A our expect a We our cash platform an as on that scaling in basis, total of a continue annual to asset leverage decline operating over revenue will XXXX as base. percentage

$XX.X our reached of our a $X.X balance sheet, of capital billion on to a forward gross assets perspective the of all ATM million of stock, the highlight sale quarter, the our following. on million we Turning at year-end. program. $XXX in I'll markets income-producing in investments QX basis our completed fourth XXXX, With From approximately

Additionally, in equity balance during At $XXX.X equity the year-end, unsettled we September. million forward of of quarter, our raised $XXX.X we million. forward totaled settled the

equity X.Xx to adjusted year-end. Our net adjusted unsettled EBITDAre at forward was pro debt forma for annualized

committed conservative with At leverage We total liquidity. at liquidity balance stood best-in-class to maintaining year-end, our nearly million. are a sheet and $XXX

significant balance pipeline plans we for and the based Our liquidity fund today. conservative on well see our company XXXX the growth robust to positions leverage, sheet

the to Pete. rate achieve additional the midpoint. ATM equity quarter, also not It's guidance. at the strong XXXX, our our we're all seeing $X.XX issued performance capitalized to this capital a turn with pipeline investment year over the the to end achieved issuance in call AFFO we to require support and Finally, per I'll $X.XX, With implies that, back equity conservatively our that X% XXXX range balance previously of sheet, growth external note which XXXX do to the guidance share important

full Mark. remain Thanks, the prospects quite questions. quarter pleased about excited call summary, open year our and please we In fourth the results for with the for are business. Operator, and

Instructions] from [Operator with Wells Connor Fargo. It comes Siversky

is be A with of comfortable curious funding pipeline each you would comfortable then the million and quick capacity flow, a the run the on revolver? you mentioned, robust how the incremental between letting really revolver, I'm that liquidity profile. for end mix would desired -- on question acquisition this cash leverage free forward, year? $XXX that in chunk of on Understanding predicated liquidity the you how is be And the what the toward

tackle you Mark, why don't that one?

right, All it. things. a of got You couple

generally your and speaking of been flow. XX cash like terms debt almost we million at In terms looking of kind in free and free XX That's of of just cash how that's mix, kind largely $XXX think had But about equity of of funding XX/XX debt. probably we now more with is kind equity, XX probably liquidity. flow,

if running X.Xx. choose pretty of terms that we it leverage, we to say was reasonable in what I terms consistently would that would to be is X.Xx thought we've leverage In I said of range were guess a up,

kind and at of to got you that we before of a fair [audio dropped] we've we're about If range. runway even Xx into amount think go ever that now, step sitting

Next question, operator?

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were you Hold good? on, Operator. Connor,

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Next question please, Operator?

question with Bank from comes next of Dennerlein America. Josh Our

is how acquisitions? attributed question level the more This on little rent wanted to coverage unit or I detail Granath and the recent first into you Josh. a to Farrell on bit downtick My of if was that slight behalf could go ask,

on in which were a great in at both spot, like. different pause. that and concerns flows always the But seeing operators provide in and ebbs supplemental of periods from listen, quarter basis we're portfolio the X.Xx. There's and as pretty acquisitions our some reporting down rent number quarter, acquisitions give headline is Yes, any Clearly, granular us different coverage. as the to is third and with unit the level of the some that fourth the overall, attributable in points, we the decreasing XX the detail well not

Great. in guess And flip different either the of this of the being increase escalators? I is type that? into what's higher your going on same-store off lease driver growth, Or terms, of the that, that's side driven rent

contracts. the flow going that our Yes. between from going those On I escalations of mean to Generally, disclosed. just us. compounding it's to as on And to escalations solid into believe. they X.X%, pretty rent up we've different of X%. range And that's and There's average, at X.X% represents ebb built a kind be that's flow-through X.XX% periods. for I clearly, anywhere

from Smedes question comes next with Citi. Our Rose

expensive. available acquisition to or little as of the sort market? not do come of some this capital about the are bit, to advantage just traditional look of sources of wanted relative point you opportunities in at new other too more just this you ask you a a you Or environment? seeing have becoming for you kind competitors either talked But I

I Yes. asking a And great think that's Thanks, Smedes. I it. question. appreciate you

opportunity from private from particularly finding put A relative advantage leverage market. with to and of the ABS capital competitively more limited, secondarily, an sources. debt little priced sources accessing of and private pretty of and have conservative alternative those capital traditional nice A sale-leaseback the reliant environment, compete the market of who we're current traditional then the market are financing more in competitor and participants sale-leaseback able sources the currently and a lot high-yield perspective capital work. we're to perspective, of inside guys are current been credit. We a capital. somewhat from buyers bank And the Both capital to In are have market on those like environment. alternative loans a to a those lot the

of were of XX-year if then of unsecured issue you you a give think you And you going where Okay. would on just But revolver. it the can draw mentioned you have have price? you the room just lot a debt to kind just -- to sense us today,

Yes.

are mark mid in X. our I curve trading, a so think would that bonds, price out that, current be would mid-Xs. think the hopefully which the of there yield and I inside to issuance best of of kind low call the could they're out it new

Our Capital BMO next Eric Markets. question comes with from Borden

I quarter bank uptick the the by just pipeline? majority and in in ahead some of partners limited understand access markets the for the looking existing completed to relationships. fourth seeing your tenants, potential acquisitions given that driven you potential heavily the was the of an are in new But

us. more maintain our and the try best good the new profitable or and new of outgrow take mix, because we're towards a see great relationships. what in that that's to kind That's generally skewed care clients, existing the us fourth continually at In existing environment, some it's to tell for relationships source and I of relationships it's we're eventually, XX%, XX/XX percent XX/XX Because reliable important and Clearly, relationships people risk-adjusted quarter question. we relationships. XX% relationships, the like relationships doing. the most where service XX% to we current generate returns clients

back I value long-term us have with we're down normalized a think a is head we're happy that partnering environment, relationships. relationships in value more dynamic it's bringing But XX/XX. that to or those to would to XX/XX we clearly, And them. market bringing to and

disposition back then of lower potential X-quarter for to benefits given there? trailing the dispositions front, that quantum is Okay. maybe half the for year, the That's given helpful. rise in potential the yields total of just there above And on your just the average

Yes.

X-quarter to I be going bit the think towards the average. more expectation challenged. for our a current should it's market dispositions Clearly, be is

financing closer a risky any average. are individual to very of We difficult to on would of don't balance a than out of to the is kind portfolio, have the granular a out expect sell assets making the capital fungible and industry need we and assets normalized we getting I environment. into lean from little exposures and be managing generate lack in focus it a there but we'll where more to to sheet And given But dispositions see. accretive that X-quarter really, we it see And tenant perspective.

Crossett BNP Nate Paribas Next question comes Asset with from Management.

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The from Greg Scotiabank. comes next question McGinniss from

with Greg. is This on Chang Elmer

on returning feeling uncertainty then debt Just to XX on operators versus how from effects the guidance the say that And there conservatism points XX losses tenants, of the you've is feeling historically still more with tied work basis expense credit or of experiential consumers consumer? XXXX into experienced given is demand to pressures or either much inflation? bad baked to

as unit portfolio to guidance a built individual Listen, guidance at credits, very level our range at look into take take rent our close always try rent and credit loss around to coverage anticipate exposures the conservative look and assumption where And we might we We any our rent assumptions we assumptions a loss basis have of include to there's wide into baked loss. that. and do.

really driven as partially us don't those year, As the in. relates concerns industries XX to guidance we've to you range experience-based don't coming specific on see losses basis of consumer tends it certainly there. -- we the generally credit numbers to have as said I The service by past, fair the the guidance in that fact be give about XX range raising is We a the it around throughout points, when play. specific the to and and to that that it's really But think we're in specifically guidance aren't say. the

going we've more today. we loss situations experiential to to into and and and Our assumptions guidance that's investments. -- see great are good the credit feel trends guidance, and reiterated specific good are coverage continue But continue much that sales individual and about our doing improvements baked to there be tenants we to

And that cost how But early concerned inflation to mentioned consumers you portfolio given types you. thank these talked not within through the childhood you've rates in about businesses pass experiential easing raise is casual you dining Okay, you a characterize to being now would not higher and several of seems mentioned it past the consumers, being bit of able quarters? to them. operators, ability their about those then and --

I is childhood Listen, be early casual than going Yes. much to think different dining.

childhood increasing providers students, good increases. to done new seen through It semesters education a around lumpy there. passing early but and be Our job of tends have trends we've

in I more margin to certainly, less discretionary. and -- is drive the A), But sector being see then less And inflationary -- both we through seeing the compression industries. have those ability guys one flowing and competitive, those through end are those are on landlord don't dining little portfolio any ultimately, losses we casual a in equity and in to risks either outsized think And price the those not pressures risks. is owner some all going there. B), in up industries, of specific general

comes St. Our from question next Haendel

Securities. Juste with Mizuho

the a think kind is about your moment Spa. opportunity overall here? question I Tidal top you I vertical Maybe more is tenant spend Wave exposure care to do can in guess carwash/car the tenant Auto them list there's -- First here, new talking of your to with on about a XX% and them, which

long a in top about exposure back of comfortable in flows business they've And past, the have over industry and the XX. good them of with and in a as and to we'll eventually of that of and so a it, a industries. do well-run moved It's of company. to space that's and is with number its our the and we founder why very top unit we're into came the company tenant of in like last doing to stability continue a Wave number our happy XXX-plus bit deals currently It's we've a but the XX. kind chain. little rent was kind given the years, high been margins Tidal are, in led opportunities the said Yes. we've so the top see founded business for years for Generally, invest we been and time, coverage. It's XXXX, by we carwashes and cash our as that quarter, the see trends in so. back the The to it one continue solid in you a

your that. think you be that saying Appreciate should X the about on cap or talking pipeline term. in your I stable on in there choppiness the And maybe given the you in that capital a new And a cap spend rates markets. broadly, near suggest made rates the expectations rates categories? pipeline? Any there? for moment then comment cap What's Can

Yes.

remarks, a sale-leaseback and going existing is said We're your that's full. all that's investing with XXX% looks we pipeline forward business, business really you're the look As XXX% on And -- whole relationships. it so and what new to nearly pipeline running the And new. prepared largely nothing your like, is like industries lot your our across follow-on nearly portfolio. when a

I of terms around suggest as X. think landscape an stable. cap the they're And the clearly, remaining In competitive rates, commentary around would

But here there's just once more -- cap a the we're competition the interest on remarks, we downward fashion, we as expect prepared rates. expect that said Clearly, sit rates quarter. would some normalizes pressure some on seeing normalized on would in first would market expect we not rates. in if downward comes down, I pressure trend back if we the cap As and

to terms folks? maybe those you're And from term? lot the you've the these pushback near And to of could alternatives any on a of walls, terms Thanks. that lack we bumps. any given that. getting, getting able see I'm even tenants better longer you're of better been curious those able have, Appreciate that get get if --

the terms Listen, past. deals Yes. of to bias negotiated transaction. transaction. in is the We've prior a place these tend There's negotiate people a we new and lease transaction the the in every with transaction negotiated

best quarter year, Our done investment X.X% improving our set I before team and in was relationships, the would XX quarter at market point the average terms. of -- we X.X%. from higher, this escalation quarter, that expectation it lease prepared has years would first but leases -- out be. and is would see rent X.X%, these the negotiate and I our which we continue of good the we past the for to make would look XXXX, back great speak what job was it was to X.X%, the that a year, not long X.X%. X.X%, to I that's did and of it bears. that was a year as X.X% which on terms whole last ago, average the overall spot I the duration remarks, the I term same weighted is the added a can benefit really, going we'll that the

Our Securities. question Riley with from John comes B. next Massocca

Maybe on should number but the wise kind thinking? what of you like rough just of kind you side we it's number know be of have pipeline, I maybe brackets that mentioned full, a today? or do growth around the

our average of what to is, and to expect. what that indicator X-quarter Typically, somewhere between but people know X.XX exact as a good I point we X.XX. number don't And

cost come That's market sale-leaseback alternative rate then of interest of or I of reluctance seen of the the you part to volumes, the your maybe helpful. selling property have to essentially, given are cap partners partners any of holding rates or in mean just close kind for on financing? And out side terms maybe of lower on deals better the volatility? some

their current of that of a the market XX%. is in tenant as -- There's they smaller choosing have to grow and partner part And opening these And and by not of is and growing market aggressively us there's side a in that tenant lot a units overall they're capital some to them. single -- buying environment. the small overall the lease of opportunity flip people transaction or volume lease not use think is businesses, new their competitors I running decision single rent down the do clearly to are that. to that. investment that footprints transact for But are Yes, operators net choosing

volume we the an set board, to ample opportunity across still muted is see transact. there While

And compete Okay. I then any the in And of that competitive or I for of terms other mean, out financing there types kind maybe environment time to the financing roughly? does you today? with? how how look aside even many a this of competitors of of are mean, particularly, that year, bank Setting kind today market maybe years does last compare or they couple how sale-leaseback ago?

market different the XX think coming not don't to was hoped. build of And Yes, were ago is to because it environment years large, have buyers are we year improved platforms. slightly. the But not would ago, a a investing capital and kind where overall those to lot funds I X currently the by dozen about kind market feels new levels at listen, that they the are capital-backed half who private like trying if it's same, materially a guys of and of from there

that And diminished. is buyer private so greatly

real capital. largely people assets estate people source place large up We looking not on are and are plenty of capital compete sale who buyers, exchanges of is not There's in of deferred dried a tax occasion and lot coming generating XXXX competing. of there's gains from that also to public participants. market with who the And with

them overall, kind competition that we where follow and are diminished are, certainly and benefiting appetites and level what we're guys it's of of a You they from. so here see and there. know competition But their

Ki Bin Securities. [Operator It Truist comes from Instructions] Kim,

Ki on Kyle have Bin. for You

on maybe more just update think of that's provide an call, half XX quarter that the list trended than I guys recently? points you basis leaders. on mentioned approximately Can on second how watch you are with

Yes.

or It's Operator, was list, the you XX% as watch Our still credit and risk below. XX so questions? I'll a which we of remind B- currently the got risk define coverage where XX second or basis we inside more it X.X it's theaters. below basis and as current quarter, points intersection as of in points, any

Kammert from with comes James ISI. question next Evercore The

Pete, and the foot I given credit. round with X.X coverage X X.X from them had in you declines a a -- to been or what time with original seems you is middle those months in long for and I'm your and historically a with markets it like of trying well have and the these your is team parent it in those business problem? kind obviously, what you unit or tenants? row set monitor market tardy. have or a signs are entity But pretty set proactively I'm your financial of to with they've credits points mean worked monitor curious reporting something some some of Might up off engage just to up mind you a warning that the flash be of collect sort -- is helped requirements. and that rent

payments the not guys the a that's that's our flow with, amount. who even to it's be you're of late generally a would and of material tends Yes, And it guys of importantly, our I top are that than certainly their at listen, payers timely Guys the wouldn't the that is handful but level. or level aren't on form who historically, wrestling warning rent an currently, I say same it's paying laid unit because are cash I But ultimately call but early first unit solid actors. arm trends collateral think monitoring more less the at sign, list.

source for that's industries, provide the our understand and and you're the decision disclosure reasons unit margin see you And off as per taking credit extent trying such that of below have into rent we portfolio. a that that's and site, understand performance anything and that that. a the growth site, growth, data covered. at a something sales dive concerning, how lease the And rents then to as you of corporate it's But to asset if around our backing how to corporate just trends deeper expect all the to on When amount ultimately, solid have falling the making payment, arises of average the are then tracking have sales site, don't want where risk of that's or One the averages. they're that sector in you covered is there. understanding we given assets of the durability more that, per from cell our that and credit rent per each think outliers fails these analysis,

them, master obviously logical. with That protections add substitution asset you you do you you performing out? one said but your either like a just that. less to have for the sell to a put other might And asset or to have in take ailing work leases and look follow-up other assets maybe seems retailer maybe you rights and Do collateral in I mean performing could whatnot? where

subtenant easy of to between not the it. importantly, it's our at contract aligned underlying work sub-performing a the as of tenants. have level granular a tenant the would are through the in. interests lease, issues. of site good being tenant work Many say the substitute really where asset be that operating. whole we the pretty ways that and site rights keeping was lot that Because leases us rent. and these our the for work may would asset Yes. level, it's through re-tenant substitution and as delta painless There's exit in a and and the online and to it I rent more the to would of having makes are one I individual benefits site and with and working do incented say doesn't take relationships just We

closing would now for to No further Pete questions comments. at back over floor to this like Mavoides the I turn time.

we're we Nate, question didn't get sorry Great. in. Well, your

If you about guys. might all We and great start. Rob we'd we answer the to the this with you a conferences, year, upcoming posted we're for at your have year. engaging last off and you to Thank weekend. We're with any Thank gladly look want up all forward feel today. a pretty an had. you, great participation afterwards, and excited proud year. to that for generally, the to Mark congrats questions follow team excellent you or excellent have But quarter about We results an

concludes This today's teleconference.

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